Some new housing data was released, revealing the incredible shrinking housing market. For starters, 31% of all homes sold in Q2 of this year were either short sales or bank-owned foreclosure sales, which together are collectively known as “distressed sales”. The percentage of overall market activity that was distress-driven actually went up from 26% year-over-year, even thought the total number of distressed properties sold went down. More about that in a moment.
One finding that deserves a good long look is the discount at which distressed properties are purchased. According to these findings, REO sales and short sales, on average were purchased for 32% less than comparable non-distressed properties. 32% is no chump change, by any means.
The fact that he number of distress sales has dropped off yet they have gained market share can only mean one thing; that fair-market sales have dropped off further. This is indeed the case, as non-distressed homeowners are refusing to list their homes. This is due on part to the hit that their equity has taken over the last few years, but that is merely one part of the story. Fair-market listings are being undercut on price at every turn, meaning that even if they are listed, in many cases they are less attractive to buyers and don’t make it to the closing table.
This is important to note because fair-market sellers have a special role to play in any healthy housing market. In many cases, fair-market sellers sell their home, and buy another, more expensive home. The mid-high end housing market relies on move-up buyers, as first-time buyers don’t typically enjoy a strong enough financial position to buy these types of homes. And sure enough, other recent housing reports indicate that values amongst homes valued over $500,000 are beginning to trend downward faster than homes in the lower value range.
So long story short, while buyers are enjoying unprecedented savings on distressed properties, the move-up buyer ladder is suffering due to the lack of fair-market sales activity. Yet on the other hand, the overall number of foreclosure and short sales is down, and the number of properties in the foreclosure pipeline, know as shadow inventory, is down for the first time in a long time. So just like with most housing reports, there is good news and there is bad, depending on which side of the fence you sit.
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