This morning it was reported that the S&P/Case-Schiller home price indices, which are the leading measure of U.S. home prices, showed a monthly increase in prices for the 10 & 20 city composites for the first time in 8 months. The 10 & 20 City Composites were up 0.8% & 0.7% respectively in April vs. March. Sounds good so far, and the market cheers!….however; both of these indices are actually down 3.1% & 4.0% from the same period a year earlier, and overall, home prices are back to their price levels from Summer of 2003.
Another issue just reported this morning by DSNews.com (Default Servicing News), is that the combination of a large “shadow” inventory of Bank Owned Properties (REO’s), combined with tight credit conditions for first-time home buyers means that home prices at the low-end of the market will continue to fall at a faster pace than homes priced in the mid & high-end, according to Capital Economics.
We are also seeing REO properties being priced substantially below the current market which is also having a continuing negative impact on non-distressed home sellers. Nationally, REO properties are being priced on average between 36 -39% below current market values in their respective areas. To be fair, many of these REO properties need many repairs and many could be considered “fixers”, but they are still putting significant pressure on home prices, as the banks want them Sold quickly. Buyers are being conditioned to look for those “screaming deals”, while properties priced fairly (at the market) are languishing unsold for months.
Another mostly undiscussed aspect of REO’s being Sold while non-distressed properties remain unsold, is that there are no “move-up” Buyers when a Bank Owned Property is Sold, so this also decreases the Sales for higher priced homes, keeping pressure on the Mid to Upper Priced homes.
Stay tuned, In future postings, I’ll be discussing interest rates, strategies for different categories of Buyers and the changing demands we are seeing from many Buyers.
-Brian Wilson, Broker
John L. Scott Real Estate – Poulsbo