Fewer Foreclosures Could Mean Lower Home Prices | Financial BALC #71
We all know that distressed home sales put downward pressure on homes prices all around them. Close to 12 million borrowers are now in a negative equity position on their homes because so many other borrowers were unable to afford their mortgages. The logical assumption would then be that as foreclosures ease, organic home process will rebound.
But what if the current, unique state of the housing market turns that assumption on its head? Foreclosure sales now make up a full one third of the market nationally and far higher percentages in California and Florida. The supply of these properties has actually been dropping, pushing prices higher, even in the distressed category. There is a huge investor and first-time home buyer demand for distressed properties at the low end of the market, and that has helped stabilize prices.
Some experts believe that we’ll see further declines in organic home prices. Banks are slow to release their repossessed inventory on the market, and foreclosure processing delays have literally millions of properties still sitting in foreclosure limbo. A new government program calls for selling foreclosures in bulk to large investors, and over $1 billion in investor capital has been raised just the past six weeks to take advantage of this new program.
Some mortgage analysts disagree, as individual investors will likely spend more on renovations than bulk investors, who will then sell at a higher price, thereby not only stabilizing but increasing overall home values. Yes, lower supply, in a normal market, would generally mean a return to home price appreciation, but that’s not the way today’s market is working because organic demand is still so weak and is hampered by tight credit. There is even less demand for mid- to higher-priced homes. In this historic recovery from an historic housing crash, it seems the usual rules don’t apply.
(find the full article at trulia.com)
