What’s it going to take to stabilize home values? Here's my take on the situation. The Jacksonville real estate market continues to favor buyers with over 16 months of residential real estate currently for sale. Property values in Jacksonville and the immediate area have adjusted downward in response to a decrease in demand and a surge in short sale and foreclosure inventory. For example, there are currently 12,852 single family homes for sale in Jacksonville. 28% of those are listed with a title status of “pre-foreclosure” or “foreclosure”. In the last 30 days 757 single family homes were sold with 42% of those sales being pre-foreclosures, short sales, or foreclosures. The disproportionate number of foreclosure sales points to a trend among homebuyers to aggressively seek out bargains. In fact foreclosure sales have become a lucrative niche market for REALTOR’s specializing in in foreclosures. Sellers not in financial distress who need to sell are adjusting their prices downward in order to compete with the lower priced foreclosures. This activity is exerting downward pressure on home values which has resulted in an 11% decline in Jacksonville’s average sale price since Dec 07. A continued decline in home values will result in more short sales and foreclosures which will drive values down even further. It is a self perpetuating scenario. This is why selling off or reducing the existing foreclosure inventory by any other means is what is needed to stabilize and restore home values.
What motivates a bank to sell homes at fire sale prices? It’s strictly business. Banks are in the business of loaning money. When a bank exercises their right to foreclose on a home due to non-payment they now have money tied up in a non-performing asset. Each month the bank owns the home they loose money in lost interest and other costs associated with owning the property. It is in the best interest of the bank and their investors to convert that asset back into cash that can be loaned out as quickly as possible. Banks know that homes priced slightly below value will sell more quickly than homes priced at or slightly above market value.
How much lower will values fall? One guess is as good as another and I would take anyone’s opinion with a grain of salt. Everyone knows that real estate values rise and fall in cycles. A look back in history will prove that. Restoring confidence in the eyes of the consumer is critical in shortening the down cycle.