Friday, August 7, 2009

Existing Home Sales: Market Remains Bifurcated

By Jed Smith, Managing Director, Quantitative Research

Based on information furnished as input to the Realtors® Confidence Index, sales of distressed homes—both foreclosures and short-sales—have been down slightly in recent months as a percentage of overall home sales. Distressed home sales declined to 31 percent of monthly sales in July, down from a high of 49 percent earlier this year in March and a 41 percent level at the start of the year.

Distressed property sells at a discount relative to similar non-distressed property. The median discount to market for distressed property is 15 percent for both short sales and foreclosures, having declined from 20 percent earlier this year. Realtors® have indicated that the price discount is due to property condition coupled with seller need to complete a transaction. We understand that the discount-to-market price has declined in recent months due to buyer perceptions of significant values at current listing prices.

The graph plots monthly distressed sales as a percent of the market. A number of housing professionals have indicated that the level of distressed sales may increase somewhat in forthcoming months due to continued unemployment and liquidation of property inventories by financial institutions. The housing market continues to be bifurcated between distressed and non-distressed sales, with the former being under greater price pressure than the latter. However, the discount-to-market has narrowed slightly in recent months, and in a number of markets distressed housing listings are attracting multiple bids.

Copyright National Association of REALTORS®, Reprinted with permission

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