Apr 03, 2012
Misleading headline and foreclosure pricing
03 Apr 2012
Posted by Andrew Kantor
The Bloomberg headline reads “Home Prices Seen Dropping 10% in U.S. on Foreclosures: Mortgages.” But that’s not correct.
The story explains that Moody’s thinks the prices of foreclosed homes will drop by up to 10 percent when they come back onto the market.
What effect that will have on the rest of the market isn’t known.
So, getting past that misleading hed….
Moody’s expects foreclosure/repo sales to rise by 25 percent in 2012, and that glut will force prices down, Economics 101 style, by up to 10 percent. Meaning they could drop 10%, 9%, or 1%.
That’s because so many foreclosures and REOs have been sitting idle, accruing dust and damage while shedding value.
As the story explains, “Homes stockpiled less than a year sell for about 35 percent below the value set by lenders, according to a March 15 report by the Federal Reserve Bank of Cleveland. At two years, the loss is close to 60 percent.”
So, what effect will cheap foreclosures have on the overall market? Hard to say, although everyone will have an opinion.
Will they drive prices down across the ‘regular’ market? Only if the same kind of people who would buy a home in good condition would also look at a fixer-upper.
In this buyer’s market, will most people prefer to get a house that’s move-in-ready? Or will they only be able to get enough financing for a beat-up REO?
How about investors — will they turn to them? Could be, if they think they’ll save enough on the price to pay for the repairs before selling or renting them.
It’s one of those multi-variable problems that keeps pundits, analysts, and other “experts” busy.
Click here for the Bloomberg story. Just remember to ignore the headline.