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Foreclosures, home values, and what we might expect through the rest of 2011
June 22nd, 2011
Generally speaking, and outside of economic factors, the slow pace of the real estate recovery is due in large part to foreclosure activity. Specifically, median home values continue to stagnate as foreclosures sell at undervalued prices, and these low sale prices then damage the valuation of appraisals on the purchase of non-foreclosure sales.
Simply put, clearing out the foreclosure inventory, while harmful to the overall median home sale values, is necessary for real estate to begin appreciating in a traditional fashion.
So, it is welcomed news that foreclosure filings have fallen for 16 straight months. Most recently, foreclosure activity has waned as the banks get their paperwork in order as a result of the "robo-signing" mess. This has also kept the banks from releasing additional inventory to the market, meaning there is a bit of a backlog of homes that will eventually increase supply in the marketplace. Still, fewer homeowners are falling behind on their payments, so there is seemingly an end at sight.
The inconsistent flow of foreclosure inventory to the market, coupled with government intervention in the form of the first time buyer tax credit, has led to waves in the median prices of sold homes. Looking at Bellevue as an example, this graph of median prices of sold, single family homes in Bellevue does an excellent job illustrating that effect…
We all know by now how the media loves those attention grabbing headlines about falling home values, but tell me, if you were to draw a trend line across that graph where would you draw it? Pretty much straight across… or flat, right?. So, the media can say what they want, but the bottom line is that home values in the Bellevue and Seattle area have trended flat for a long time now.
Sidebar: do you think the buyers who are "waiting for the bottom of the market" before buying have actually seen or researched the above data, or are they just reading the headlines? We've been at the bottom of the market for a long time… it's more so that foreclosure activity and headlines have clouded the way the market is perceived.
So what should we expect home values to do through the rest of the year? Well, I expect home prices to continue trending up through September as more active buyers hit the market during the summer season and while banks are still holding back inventory. But, that inventory has to hit the market and will in the not very distant future, and this will lead to lower median sale prices towards the end of the year.
Thus, it looks like you can extend that flat trend line out a bit. BUT, the most important factor, in my educated opinion, is that foreclosure filings have continually been dropping. Meaning we should begin making progress on clearing out that inventory of foreclosed homes in the bank's possession.
When that happens, the real estate market will finally be prepared to start moving that trend line up.
- Robert E. Wasser - Seattle and Bellevue real estate trends, news, statistics, and blog
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