IF HOME SALES ARE UP, WHY ARE PRICES DOWN?

IF HOME SALES ARE UP, WHY ARE PRICES DOWN?

Justin LaHart of The Wall Street Journal reports that existing homes sales were up during the past month. Low prices helped to increase the sales volume. NAR reported a 2.9% increase in the sales volume of previously owned homes during April. This was an improvement over the March results. They further reported that sales of distressed properties accounted for 45% of the April total.

We are also seeing this in the suburban Maryland market. We have a very active sales market and the action is in the inventory of lender owned foreclosures. Many of the homes need work and that is reflected in the discounted prices that are being accepted by the REO asset managers. The better homes go first, so as the REO inventory ages, the homes in worse condition sell last at even lower prices. These sales become the statistics and the comparable data that appraisers use for the entire market. The drop in home prices impacts the individual home sellers as well. Many have have seen the values fall below the amount of their outstanding mortgages.

Home price statistics are distorted by the disproportionately high percentage of distressed properties that are included in the sales volume. Fewer high end homes are being sold due to the adverse economy and investors are actively buying prospective rental properties in the lower price ranges. So, the average sales prices are down due the type of units that are being sold. It should be noted that investors are in direct competition with first time buyers and the investors have the edge since they can purchase "as-is" properties without the restrictive financing that first time buyers usually use.

Many individual home owners that want to sell are waiting out this market. They want to see the prices going up before they market their homes. Yes, we are advising prospective home sellers to delay their plans unless they are very highly motivated to sell. Since most of the current foreclosures relate to mortgage loans originated in 2005, 2006 and 2007, this surge will eventually be cleared. Underwriting guidelines have been different since the fall of 2007 and borrowers must meet higher standards to qualify for mortgage financing.

What does this mean for prospective home buyers?  It is a good time to be in the market if you are purchasing for the long term. The selection is the best in years, the prices are the lowest since 2004 and the interest rates are still very attractive. First time home buyers do need to worry about increasing interest rates and the possibility that the selection will be smaller as we approach the end of November deadline to qualify for the currently available $8,000 tax credit.

We represent home buyer clients as their exclusive agents in Montgomery County and Frederick County, Maryland. We welcome referrals of your friends and family members that want to become home owners. All buyers should seek pre-approval for mortgage financing before looking at homes. Ask us for a referral if you do not have a relationship with a mortgage lender. roykelley@mris.com

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