Housing Prices Decline as Foreclosures Rise

U.S. home prices are started to decline as we see a wave of foreclosures with lenders putting more properties on the market and buyers now showing an interest to buy.  
 
How America's lenders manage this fire sale will be crucial to determining how long the housing market stays in its decline -- and how quickly neighborhoods can recover. The oversupply is critical: In some major markets, including Las Vegas and San Diego, foreclosure-related sales have accounted for more than 40% of all sales in recent months. 
 
New data released on Monday suggested that pressures like these are starting to drive prices low enough to attract some buyers back into the market. Sales of previously occupied homes jumped 2.9% in February from the month before, the National Association of Realtors said, the first increase since July. 
 
The median price dropped 8.2% from a year earlier to $195,900, the biggest drop recorded by the Realtors in the current slump. 
 
In some beaten-down markets, the price cuts have been stark. The Detroit Board of Realtors recently found that home sales in the city (excluding suburbs) in the first two months of this year jumped 48% from a year earlier, to 1,540. The average home price there sank 54% to about $22,000. 
 
Banks and others holding foreclosed property have concluded "we've got to move things" and are finally willing to slash prices, says Thomas Lawler, a housing economist in Leesburg, Va. 
 
The supply is piling up fast. Overall, the total number of lender-owned homes doubled last year but sales grew only 4.4%. 
 
At the same time, the specialist firms that sell foreclosed homes for lenders say banks are sending them additional properties much faster than they can be sold. "They're coming in [at a rate of] two new properties for every sale," said Claudia Smith, vice president of operations for First American REO Outsourcing, which is handling roughly 8,000 foreclosed homes for lenders. 
 
First American CoreLogic, a research firm based in Santa Ana, Calif., that collects data from lenders and county clerks, estimates that foreclosed properties held by lenders accounted for 493,000 of all homes on the market in January, up from 231,000 a year before. Properties like these represent roughly one of nine currently listed for sale nationwide, compared with a one-in-15 ratio a year earlier. 
 
"This is both a crisis and an opportunity," says Rafael Cestero, a senior vice president at Enterprise Community Partners, Columbia, Md., a national nonprofit group that invests in housing for low-income people. Clusters of empty, foreclosed homes attract criminals and hurt neighborhoods by undercutting property values for everyone. Brenda Lawrence, mayor of Southfield, Mich., where about 3% of all single-family homes are in foreclosure, calls foreclosed homes "a cancer." 
 
But foreclosures also can help bring prices in high-cost areas down to levels that are affordable to teachers, fire fighters and other middle-class buyers who may have been priced out of the market during the housing boom. 
 
U.S. Rep. Barney Frank, a Massachusetts Democrat, recently announced plans for legislation to provide $10 billion of federal loans and grants to help local government and nonprofit groups buy and renovate vacant foreclosed homes. The homes would have to be sold or rented to people with low or moderate incomes. 
 
The overabundance of foreclosed homes in the market is likely to push down home prices in much of the country for the next several years, says Ivy Zelman, chief executive of Zelman & Associates, a housing-research firm in Cleveland.