Wednesday, June 29, 2011

Home Sales vs. Home Prices

The negative statistics about the current state of real estate continue day after day. Instead of any positive ones. Yet, over the past few days, I have been seeing more and more stories about the drops in home sales prices be presented in a positive light.

As much as I have been preaching the need for positive stories dealing with real estate, I also preach that these should be legit stories. Yes, home prices are generally dropping even further in much of the country. However, that doesn't mean it is a positive.

The point is being made that more recent drops in average home prices are not as much due to foreclosures and short sales as they have been over the past couple of years. This is being treated as a positive. I'm not certain that's the case.

That fewer homes seem to be getting foreclosed upon is certainly a positive. But that is not enough to group this fact with others relative to home sales.

Home prices being much lower than 5 years ago is not a positive for a large group of home owners around the country, perhaps the majority.

Even though foreclosures are down now, there are still a ton of homes around the country for sale at foreclosure or short sale prices. Those are in addition to distressed properties practically abandoned by builders and developers. The mere availability of this many properties at lower prices serves only to bring down the value of the homes surrounding it. And that is not a positive for more people than the number who can buy under current market conditions.

Too many home owners are right now stuck paying more than the property is now considered to be worth, and are under water with their mortgage. They cannot sell "for less". If they take a loss and have to write an additional check at the time of sale, there is no money for a down payment and to finance a new purchase. So there is no choice but to wait until or unless the local market returns to the point where they could get a price high enough to justify selling it.

Meanwhile, many who would like to take advantage of the buyers' market out there cannot. The availability of mortgages has gone full spectrum, from having been too easy several years ago to being way too difficult now. And that's for those who can even afford a sufficient down payment.

The same banks which contributed to this crisis are now cutting back instead of getting in there and actually (gulp) helping their customer bases. They are loaning on fewer properties, cutting back or eliminating options such as reverse mortgages, and sitting on defaulted properties they technically own due to foreclosures.

As a result, the banks are really a big factor in keeping home prices down, just as they are in keeping home sales down from where they could be. With no end in sight.

If only the news media would keep all of this in mind when reporting the "positive" news about the current status of real estate.

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