Foreclosure Sales not impacting prices too much

In our May 11, 2009 posting, Affordability Returning to the Local Housing Market", we suggested that foreclosure sales were not placing downward pressure on prices. We are seeing bank-owned properties priced at market value.

Now a report from the Federal Housing Finance Agency (FHFA) lends additional support to our thinking about our local market. In its May 27, 2009 report, The Impact of Distressed Sales on Repeat-Transactions House Price Indexes, the FHFA takes on the task of quantifying the effect of distressed sales on average home prices. By analyzing the California housing market since it peaked in 2006, the report concludes that distressed sales magnified price corrections by only 5.4%.

California's housing crisis has been one of the worst in the country. The House Price Index (HPI) compiled by FHFA shows a 41.3% price decline since the peak in 2006, accounting for all sales including distressed sales. When the HPI is formed without distressed sales only a 36% drop is evidenced.

Our local market has not had near the impact of foreclosures that California has seen. The FHFA's report suggests to us that prices in our market are not being artificially impacted by foreclosures. Instead, the volume of foreclosures that we are seeing is simply an addition to our supply of homes. Any increase in supply without a commensurate increase in demand leads to lower prices. But unlike California's 41% reduction in prices, we have seen prices drop only 12% since their peak in 2007.


Click image to enlarge.

To view the complete FHFA report visit: http://www.fhfa.gov/webfiles/2397/researchpaper_distress.pdf

Statistics compiled by Coldwell Banker Evergreen Olympic Realty, Inc. from the NWMLS database. Statistics not compiled or published by NWMLS.