Backlog of Foreclosed Homes Weighs on Prices
Friday, April 24, 2009
The nation's logjam of foreclosed homes, which will likely grow significantly in the next few months, is dashing hopes that the housing market could rebound quickly this year and helped fuel a tumble in home prices last month, according to industry data released yesterday.
Home sales fell more than expected, 3 percent in March compared with February, but not as quickly as in some previous months. But even as some analysts cling to early signs that sales could begin to stabilize later this year, there is growing concern that an excessive inventory of foreclosed homes could flood the market and suppress prices well into 2010.
After surging unexpectedly in February, home sales fell to a seasonally adjusted rate of 4.57 million units, according to the National Association of Realtors. That is down 7.1 percent compared with the same period a year ago.
Sales fell the most in the Northeast, 8 percent, which also saw the biggest dip in prices, but were unchanged in the Midwest and down 4 percent in the West. In the South, which includes the Washington area, sales fell 1.7 percent and prices dropped 12 percent.
Despite the drop in sales, there is evidence that first-time home buyers are entering the market to take advantage of lower prices and an $8,000 tax credit, said Lawrence Yun, the Realtor association's chief economist. First-time buyers typically make up one-third to 40 percent of the market, he said, but were 53 percent in March.
"Sales appear to be the stabilizing, but the key question is what happens to buyers in second half of the year," Yun said. That is when the economic stimulus package approved by Congress could begin to have an impact, he said.
But even as economists debate the end of the free-fall in home sales, prices keep dropping. Median home prices fell 12.4 percent to $175,200 compared with the same period last year, according to the Realtors' data.
In a report released yesterday, Fitch Ratings estimated that home prices will fall another 12.5 percent before hitting bottom -- back to 2002 levels. Prices nationally have already fallen 27 percent from the mid-2006 peak, Fitch said.
Distress sales, including foreclosures, have pushed down prices. They accounted for more than 50 percent of the market last month, up from about 40 percent earlier this year, according to the Realtors.
But a bigger problem may be emerging, analysts said. Many large lenders, including Citigroup and Bank of America, began foreclosure moratoriums late last year that are now expiring. Fannie Mae and Freddie Mac, the government-controlled mortgage financiers, halted foreclosures in November, swelling the backlog of seriously delinquent borrowers.
Also concerning some analysts is a "shadow" inventory of foreclosed homes that lenders have kept off the sales market. When those go up for sale, it could depress prices more.
In some markets, including California, only about 30 percent of bank-owned properties were being actively marketed by lenders, according to RealtyTrac, which tracks foreclosure data. "The most common explanation is the inventory is overwhelming lenders' ability to process things," said Rick Sharga of RealtyTrac.
That casts doubt over one of the few potential bright spots in yesterday's data. The supply of homes on the market, although historically high, remained steady in March. At the current sales rate, it would take 9.8 months to sell the homes on the market, almost unchanged from the 9.7-month supply in February.