Market insiders had envisioned that the housing market would be well on its way to recovery by now.

Instead, it remains mired in the doldrums, with sales and prices hovering only slightly higher than when they hit bottom more than two years ago.

Here’s one possible reason why:

On average, four out of every 10 Orange County homes sold each month is either a bank-owned property or a short sale, according to figures provided by Adrese Roundtree, chief operating officer for the California Regional Multiple Listing Service.

These distressed properties – sold by the most motivated buyers in the business — act as a drag on the market, depressing prices.

Bank-owned homes are foreclosures that were repossessed by lenders. Short sales are homes sold on the open market for less than is owed on the mortgage.

The MLS numbers show:

• The average number of distressed properties sold through the broker-run home listing system was 1,119 a month in 2009, representing 49.9% (half!) of all MLS deals. (See chart at right.)
• In 2010, the average fell to 1,097 a month, accounting for 43.5% of all MLS transactions.
• This year so far, the average held at 1,090 a month, still at 43.5% of all deals.

So even though the percentage of distressed sales fell slightly, the actual number of distressed transactions remains virtually unchanged for nearly three years.

Of course, those numbers are averages. Monthly numbers fluctuated from a high of 1,239 in May 2009 to a low of 669 this past July.

In addition, the distressed market’s share of sales fluctuated from a high of 63.9% of all homes sold in January 2009 to a low of 30.1% in July.

But even after falling to July’s low point, distressed sales turned around in recent months, rising to 971 homes sold in September, representing 42.7% of last month’s total MLS deals. September’s distressed sales numbers are only slightly below the post-crash averages listed above.

Other trends show that while the number of bank-owned sales has been falling over the past three years, short sales have risen. The MLS figures show:

• Sales of bank-owned homes dropped from an average of 615 units a month in 2009 (or 27.9%) to 552 a month this year so far (24.1%).
• Short sales increased from an average of 451 a month in 2009 (or 19.7%) to 481 this year so far (21.3%).