Some grim news again this week for the depressed condition of the real estate market. Home prices plummeted 5.9 percent in the second quarter from a year ago. That is the biggest drop in price tags since 2009. Prices slipped .62 percent as compared to the last quarter, according to data compiled by Federal Housing Finance Agency.
The reason for the dismal show? Foreclosures. Unemployment has contributed to the loss of homes for many homeowners, who began defaulting on their mortgage payments.The oversupply of such properties have dragged the market value of homes on sale. This despite historic low mortgage rates. Bloomberg reported that homes for sale averaged 3.7 million during the recently concluded quarter, the highest since the third quarter of 2010. As we said in the previous weeks, it’s a fun time to buy now. We don’t know how long these deals would last. So, grab them before they go away.
Luxury Real Estate Market Also Takes a Hit
The median home price has dropped to $174,000. So, what’s the current condition of higher priced real estate markets? According to CNBC, expensive homes have not been spared by the price fall, and the outlook for that segment is worse than the overall market. Sales of homes below $250,000 rose nearly 25 percent in July year over year, according to the National Association of Realtors®, while sales of homes over $500,000 remained flat. The numbers probably took a toll on companies such as luxury home builder Toll Brothers, which saw revenues drop 13 percent. So, why is it bad if the luxury segment is weak? For one, unlike the lower priced homes, there are fewer takers for this segment. The ones that can afford to buy are more susceptible to the volatile stock market. The $500,000 homes are move-up homes, and if there’s no movement there, then the homes in the distressed market would again plunge prices further, CNBC says. So, along with the others we need to root for this market to succeed.
Rising Short Sales Affect Market Conditions
While home prices dropped overall and in the higher-priced markets, sales of foreclosed homes accounted for a larger share of the U.S. housing market in the second quarter when compared to the same time period last year, market researcher RealtyTrac reported. Bank-owned or distressed homes accounted for 31 percent of residential transactions, according to Dow Jones. That’s up 24 percent from a year ago.Total sales of distressed or bank-owned properties fell to 265,087 in the second quarter, down 11 percent from a year ago, but up about 6 percent from the previous quarter. This is good news because it shows some movement in that segment, thereby reducing the stress of inventory in the market. Average sales price of bank-owned and foreclosed homes dropped almost 5 percent from the earlier year and 1 percent lower than the first quarter. RealtyTrac Chief Executive James Saccacio told the Dow Jones Newswires that the lower prices indicate a housing market that is focusing on clearing distressed inventory through more streamlined short sales.
“This gives distressed homeowners who do not qualify for loan modification of refinancing – or who are not interested in those options and want to sell – a better chance of completing a short sale to avoid foreclosure,” Saccacio said. That helps lenders clear delinquencies, and in the long run everyone is happy to avoid foreclosures. Hopefully, we will continue on this path, and this should help the real estate market pick up some steam again.
Team Obama Looks Into Firing Up the Housing Market
The New York Times reported this week that the Obama Administration is pondering ways to stimulate the housing market and one of the proposals, according to anonymous sources, is to allow homeowners with government-backed mortgages to refinance at the present low interest rates. That should be a big relief for homeowners struggling to balance their budgets, and could also improve the condition of real estate market. The depressed economy played havoc on homeowners’ credit and left them occupying homes cheaper than what they owe on them. Lower mortgages would mean more disposable income for homeowners, which in turn would stimulate the economy. This would also ensure that more homeowners would be able to meet their financial commitments and save their homes. That should stop the influx of inventory into the real estate market and arrest falling prices. But would investors in government-backed mortgage bonds and regulators overseeing Fannie Mae and Freddie Mac like the deal? Probably not. But we can all hope for the better.
Although the government is also working on a proposal to turn foreclosed properties into rental units, if the refinancing plan goes through, it could save homeowners $85 billion a year, the New York Times reported. Now that kind of money could really vitalize the economy.