While actual home sales may have had a modest gain this past month, the gain was bittersweet as it is attributed to the declining prices in many markets across the USA. At least a 40% or more of the homes sold nationally last month involved foreclosed homes snapped up at bargain-basement prices or homes sold at a loss by lenders or owners who had no alternative, according to the National Association of Realtors.
These so-called distressed sales helped depress home values across the country, feeding into a downdraft that is making it increasingly difficult for many Americans to sell their homes for more than they paid. This “upside-down” phenomenon is being felt by many homeowners who now find that because of declining values their homes are now worth a lot less than they owe on them.
Nationally, prices of previously owned homes were 7.1 percent lower in July than a year earlier, the NAR reported on Monday, with the median value falling to $212,400, from $215,100 in June.
And there were signs that prices would continue to spiral downward for months to come. The number of homes and apartments for sale jumped 3.9 percent in July, adding to the supply glut that has bedeviled the housing market for months.
“It’s cold comfort to know that the banks are succeeding on selling their houses at prices that are pretty breathtaking,” said Robert Barbera, chief economist at the research and trading firm ITG. , referring to banks that have repossessed foreclosed homes from owners who could not pay their mortgages.
Indeed, a big portion of those sales, 40 percent or MORE – stemmed from properties where owners were forced to sell at a loss, via short sale, or were dumped by lender REO departments. The NAR data appears to underscore the fact that desperation appears to be driving sales, which means prices are not likely to rise anytime soon.
“A year ago, sales of distressed properties made up less than 10 percent of total sales”, said Lawrence Yun, chief economist of the NAR.
Distressed sales once accounted for so few transactions that economists for the NAR did not even measure them as a separate category until this year. But in July, the sales made up their largest percentage to date. Are you kidding me???
“In places like California or Florida, many of the homes that are listed for sale can be classified as distressed,” Mr. Yun said. Duh!!
And many Americans may be waiting for prices to drop even further. The wave of foreclosures, coupled with tighter lending standards, has scared off many would-be purchasers from the market, which has entered its worst slump in decades.
“There is still a considerable distance to travel before prices sink to levels necessary to balance supply and demand in the housing market,” Joshua Shapiro, chief U.S. economist at the research firm MFR, said yesterday.
We have been talking about supply and demand economics for months and not many real estate agents seam to understand this or even want to understand this.
Recently we had Peter Schiff on the show and his assessment was spot on. Realtors listen up. Real simple, high levels of inventory, mandate lower prices. Lower prices and buyers respond. Get the picture?
Hold on, the news could actually get worse. Today, Standard & Poor’s will release its Case-Shiller home price index for June, considered the most reliable indicator of the nation’s home values. The Commerce Department will also release figures for sales of newly constructed homes in July.
This should make for an interesting week!
Article originally posted on the Fort Lauderdale Real Estate Blog: August 26, 2008
Robin, These folks are either wearing blinders or they truly just don’t get it. In my market 83% of the closings for July were distressed properties!!! I expect that figure to go even higher.