ESTATE


Impact of distressed homes
2009/02/24, 7:01 pm
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“Distressed” Sales Impact Metro Area Home Prices

by NAR Research

Most metropolitan area median home prices trended down in the fourth quarter of 2008 compared to the same quarter in 2007. But a major factor impacting that downtrend is likely the share of “distressed” sales. The latest quarterly metropolitan area home price report from NAR indicates that 134 out of 153 metropolitan statistical areas experienced declines in median existing single-family home prices from the same period in 2007. One area was unchanged and 18 metros reported price gains. NAR’s quarterly survey on state-by-state existing home sales show that resales rose in only six states from the fourth quarter of 2007.

The largest single-family home price increase in the fourth quarter was in the Beaumont-Port Arthur area of Texas, where the median price of $132,600 rose 16.7 percent from a year ago. Next was the Bloomington-Normal IL area at $159,300, up 9.6 percent from the fourth quarter of 2007, followed by Dover DE where the median price increased 6.5 percent to $212,500.

Total state existing-home sales, including single-family and condominiums, were at a seasonally adjusted annual rate of 4.70 million units in the fourth quarter, down 6.4 percent from 5.02 million units in the third quarter, and were 5.9 percent below the 5.00 million-unit pace in the fourth quarter of 2007.

Behind the Numbers

Distressed sales – foreclosures and short sales – accounted for 45 percent of transactions in the fourth quarter of last year, compared to about 38 percent of transactions in the third. Such significant distressed sales activity dragged the national median existing single-family price down to $180,100. That is 12.4 percent below the median sales price in the fourth quarter of 2007 when conditions were more balanced.

Strong sales gains, particularly in lower price homes, were primarily in areas with price declines resulting from foreclosures. In California and Florida, where distressed sales accounted for roughly two-thirds of all sales, the median price fell by much more as lower priced home sales far outpaced higher priced sales. Areas with the steepest declines in single-family home prices, more than 30 percent below the fourth quarter of 2007, include Las Vegas-Paradise, seven metro areas in California, Phoenix-Mesa-Scottsdale, and three metros in Florida. These areas are attracting bargain hunters. Indeed, the largest sales gains in the fourth quarter (compared to a year earlier) were in Nevada (up 133.7 percent), followed by California (up 84.7 percent), Arizona (up 42.6 percent) and Florida (up 12.5 percent).

Regional Differences

The West experienced a sales gain. Existing-home sales in the West rose 2.6 percent in the fourth quarter to an annual rate of 1.17 million and were 26.5 percent above a year ago. But the region
also experienced the largest price decline. The median existing single-family home price in the West was $243,200 in the fourth quarter, 25.1 percent below the median price in the fourth quarter of 2007. With a strong prevalence of distressed homes selling at discounted prices in the West, there were no reported metro areas in the region showing median price gains from a year earlier.

Existing-home sales in the Northeast fell 11.9 percent in the fourth quarter to a pace of 760,000 units and were 13.9 percent below a year ago. Home price declines in the region were more moderate. The median existing single-family home price in the Northeast declined 4.7 percent to $248,800 in the fourth quarter from the same period in 2007. The best gain in the region was in Pittsfield MA where the median price of $206,000 rose 1.7 percent from the fourth quarter of 2007, followed by Reading PA at $155,100, up 1.0 percent, and Buffalo-Niagara Falls NY where the price rose 0.8 percent to $106,200.

In the South, existing-home sales declined 7.3 percent in the fourth quarter to an annual rate of 1.73 million and are 13.4 percent lower than the same period in 2007. Median home prices in the South also declined in single-digit territory. The median existing single-family home price in the South was $158,300 in the fourth quarter, down 7.5 percent from a year earlier. After Beaumont-Port Arthur and Dover, the strongest price increase in the region was in El Paso TX with a 5.3 percent gain to $140,700, followed by Jackson MS at $126,600, up 4.7 percent.

In the Midwest, existing-home sales dropped 9.3 percent in the fourth quarter to a pace of 1.04 million and were 12.4 percent below a year ago. The median existing single-family home price in the Midwest fell 10.6 percent to $139,500 in the fourth quarter from the same period in 2007. After Bloomington-Normal, the next strongest metro price increase in the region was in Bismarck ND where the median price of $164,300 was 6.0 percent higher than a year ago, followed by Decatur IL at $79,300, up 5.9 percent, and the Wichita KS area at $118,200, up 3.9 percent.

Condominium Prices

In the condo sector, metro area condominium and cooperative prices – covering changes in 56 metro areas – showed the national median existing-condo price was $186,000 in the fourth quarter, down 15.8 percent from the fourth quarter of 2007. Eight metros showed annual increases in the median condo price and 48 areas had declines. The strongest condo price increases were in the Dallas-Fort Worth-Arlington area at $149,500, up 14.1 percent, followed by Toledo, where the median condo price of $153,900 rose 11.4 percent from the fourth quarter of 2007, and the Philadelphia-Camden-Wilmington area at $210,200, up 10.2 percent.

Looking Ahead

The market is clearly depressed from job losses and consumer concerns about the economy. But buyers are responding to discounted prices and are slowly absorbing the excess inventory. Even so, it is important that they work with local professionals to properly gauge local neighborhood conditions. Foreclosures can heavily skew the broader home price figures much lower. Big discounts are not occurring in neighborhoods with few foreclosures. Assuming housing provisions in the economic stimulus package are quickly enacted and provide enough encouragement for home buyers, we could see a quick lift in home sales for the critical spring home buying season. If that occurs, home prices could begin to stabilize in many metro areas later this year as supply and demand begin to return to balance, which would greatly benefit the overall economy.

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