Wikinvest Wire

Foreclosure sales surge

Friday, October 24, 2008

The National Association of Realtors (NAR) reported sharply higher existing home sales in September, however, with foreclosures and short sales accounting for an estimated 35 to 40 percent of all sales, a real rebound in the nation's housing market is still far off. IMAGESales of existing homes rose 5.5 percent, from a seasonally adjusted annualized rate of 4.91 million units in August to 5.18 million in September, and have risen 1.4 percent on a year-over-year basis marking the first annual increase since late-2005.

As shown above, inventory is still at historically high levels. Though down slightly from last month, supply remains about double normal levels and, while sales may continue to improve as more excess inventory is liquidated, prices will also continue to fall until supply and demand are brought back into balance.

With the number foreclosures still mounting, this will take a while.

The median price for all existing homes sold last month fell 9.0 percent from year ago levels, from $210,500 to $191,600, and further price reductions are expected in the year ahead. As the economy weakens further and credit continues to tighten, home price declines could accelerate.

The market is doing what markets are supposed to do - price discovery.

Interestingly, NAR chief economist Lawrence Yun noted, "The current market is not being dominated by speculative investors. Rather, 80 percent of current buyers are purchasing a primary residence, which is a bit higher than historic norms."

It's nice to see that home buyers who have waited patiently over the last five years are finally beginning to see housing become more affordable, though, in many areas, there is room for prices to move down much further.

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AJ said...

I have previously suggested that the government partially subsidize the sale of foreclosures to help make up for the housing bubble. This has two effects.

First, it rapidly reduces the price of homes to a realistic market level, rather than letting the market drag on and on attempting to find buyers at lower and lower prices.

Second, it would help reduce inventory, allowing demand and supply to return to normal.

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