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How foreclosures affect housing prices
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KAI RYSSDAL: The real estate analysis firm Realty Trac dispensed its monthly dose of dismal news today. Foreclosure filings are still going up; 274,000 homes went into default or were seized by the bank in January. That is the 10th month in a row that foreclosure filings have been above 250,000. Meanwhile the National Association of Realtors says median home prices dropped again, off more than 12 percent in the fourth quarter from a year earlier.
We asked Ashley Milne-Tyte just how much all those foreclosures are affecting those prices.
ASHLEY MILNE-TYTE: With its unmowed lawn and peeling paint, a foreclosed home doesn’t just blight the neighborhood. It drags down the prices of homes all around it. Mike Larson of Weiss Research says buyers won’t offer top dollar on a house in a street splotched with foreclosures. And he says if you want to sell your home for $200,000, but a bank wants to off-load the foreclosed home down the block for $150,000…
MIKE LARSON: You’re competing against a much lower price point, and if that house sells not only does that go into the models that determine home values, it also forces you to price your home for less because you’re competing against an aggressive seller.
And so the spiral of low prices continues. Greg McBride of Bankrate.com says as for that 12 percent drop in the median price of a home… Well, there were fewer homes for sale last quarter than the year before. And the people selling are mainly those who really need to.
MCBRIDE: People that don’t have to sell their houses are in many cases choosing not to. Uh, instead opting to stay in the home a while longer, wait for home values to stabilize, and if they decide to move on at that point they feel they might get a fairer price at some point down the road.
In the meantime though, with so many foreclosures on the market, waiting it out requires some fortitude. But Weiss Research’s Mike Larson says ultimately those foreclosed properties will sell quickly and clear excess inventory off the market.
LARSON: In markets where foreclosures are very high and prices have fallen a lot you’re actually seeing sales volume pick up. That would apply to parts of Florida and California and so on. So lower home prices aren’t part of the problem, they’re part of the solution.
He says that clear-out will soak up the excess supply, and prices will start rising again.
In New York, I’m Ashley Milne-Tyte for Marketplace.