Home Sales

Home Sales: Bifurcated Market
March 9, 2009
By Jed Smith, Managing Director, Quantitative Research
Sales of distressed homes, including foreclosures and short sales, accounted for approximately 45% of the total home sales market in the fourth quarter of 2008. Foreclosures accounted for 30% of home sales, with short sales at 15%. The current inventory of single family foreclosed homes has been estimated to be in the 1.5 to 1.8 million range. In late 2008 a number of financial institutions implemented temporary foreclosure moratoriums, but according to various published sources the outlook for 2009 indicates a potential for an additional 2 to 3 million foreclosures. Current economic conditions have the potential to adversely impact the 20% of mortgages that are near negative equity, and an approximately additional 18% of mortgages are currently under water.
NAR publishes national and regional home sales and price figures on a monthly basis. To get behind the figures in order to examine the market impacts of foreclosures, we have also conducted a number of surveys of our REALTOR® members:
· First, the housing market is now bifurcated, with normal sales accounting for approximately 55% of the market, and distressed sales at 45% of the market; this number can fluctuate from month to month.
· Second, distressed sales-including both foreclosed and short sale properties, typically sell for 20% below normal expected market price. For distressed real estate, home condition is crucial in market pricing. Distressed homes in excellent condition do not appear to sell at a discount, but discounts of 40% or more from normal market price are not unusual for homes in poor condition.
· The national median price for single family homes in 2008 was $196,600, down from a median price of $217,900 in 2007. Several factors drove this lower price. First, the bottom end of the market has become much more active-possibly reflective of difficult economic times. Additional sales of smaller houses drive the overall median price down. Second, foreclosures had an impact in lowering prices. Using high school algebra, and the facts that distressed properties currently comprise 45% of the market at a 20% discount from market prices, one can compute a distressed price of $173K and a non distressed price of $216K for the overall year 2008, in comparison to an overall single family median price of $196,600. The comparable prices for January 2009 are $149K for distressed property, $187K for non distressed property, and an overall median price of $169,900. We appear to be living in a bifurcated market, with non distressed property selling at a price significantly above the price of distressed property. To the degree the Administration's housing programs can help to prevent additional foreclosures, there should be some favorable impact on prices.
· This information has some implications for the potential home buyer. First, although foreclosures and short sales in prime condition do not appear to sell at a discount to market, there appear to be some good opportunities for lower prices in most distressed real estate-recognizing that distressed homes may require some work to bring them up to par. Second, homes not in foreclosure are going to sell for more than the well advertised foreclosure specials. Prices have held up better.
The Administration's currently is focusing on mitigating future foreclosures, providing government assistance for refinancing up to 105% of current property value. The data indicate that this should help to stabilize home prices, although it should also be noted that there are a number of properties significantly underwater and which are unable to participate in the program.

"Copyright National Association of REALTORS®, Reprinted with permission."

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Local Market

The York's continue to have interested Buyer's. Sellers are for the most part reasonable in keeping their prices within reach of the buying market. I will say Buyers need cash and good credit these days in order to take advantage of any pricing. That said, if you want a mortgage, do the research on the lender. Pricing is much better. Interest rates are at record lows. Again, do the research or ask your REALTOR to do the research and be patient. Lenders are now having to meet stricter criteria so it may take longer to get to the closing date.

There is a web site that will help you evaluate lenders: www.bauerfinancial.com


Skilled, professional agents really do make a difference in our local markets.