Housing Prices Show Stability After Modest Gain

    Home prices rose slightly in May compared with a month earlier according to CNNMoney.com. Prices were up 1.3% from April, and 4.6% from 12 months earlier. The rise in prices may be an effect of the end of the government’s incentive program.

    Values peaked, statistically, in July 2006 and fell for 33 consecutive months before bottoming out in April 2009. The peak-to-trough decline came to more than 32%.

    In my opinion, these numbers may underestimate positive results, as all sales are counted – including distressed properties. Distressed homes are now a major component of the market. Short sales and bank owned properties account for 1/3 of all closed sales.

    On average, repossessions sell for 27% less than conventional sales. The repossession discount comes from a couple of factors:

    1. Borrowers who lose their homes to foreclosure may not have had the funds or the incentive to maintain their homes well. Therefore, the homes come onto the market in poor condition, lowering the value.
    2. Lenders want to sell these homes very quickly to avoid all the expenses of home ownership, such as taxes, utility bills, insurance and maintenance. So, the lenders are willing to sell below comparable homes prices.

    In some areas, these distressed properties are 50% to 60% of total sales. As long as foreclosures continue to happen, the high inventory will remain. High inventory is one of the biggest obstacles in the Philadelphia area to getting a home sold right now.

    However, housing has firmed up since the doom and gloom we experiences in 2008 and 2009. Right now, the market is a bit wobbly, but moving in the right direction. Simply, the recovery is going to take time. The Summer (July 4th to Labor Day) is a historical down time for home sales. Once we get into the Fall months, I anticipate more improvement and the housing market to move towards more solid footing.

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