Foreclosed Homes Are Pulling Down Prices
May 27th, 2009
Housing auctions have become a regular feature in the US. Even three years ago, house owners were not prepared to sell their property. Only foreclosed homes came up for auctions. But the situation is changing fast. Now foreclosures have become common – something that is pulling down house prices.
JPMorgan’s CFO said that home prices would keep on falling for sometime. Foreclosures would rise. Subsequently banks’ balance sheets will be stained with these toxic assets. However, at housing auctions, there is a wave of optimism. Bob Michaelis who had come down to Washington for an auction said this is the perfect opportunity for those who wish to buy homes. He says the buyers may not come across such low prices and interest rates again.
Despite the sales pitch, house auctions did not see any optimism. The first auction of a fairly large house in Virginia did not see a very good result. It was auctioned at $115,000. Last year the house had sold for $ 182,000. Similarly, another mansion came under the hammer at $375,000. The same house had sold for $563,000 last year.
It was clear that investors were not interested at this juncture. The places that were set aside for people keen on buying multiple homes were empty. Even in Miami the scene was not different in any way. Home prices were just a fraction of what they were sometime ago. According to Real Estate Disposition Corporation the price decline has not stemmed in any way. A New Yorker bought a condominium at an unthinkable price of $30,000. The buyer Michael Houtkin said that although Fannie Mae had the right to retain the property and not sell it to the winning bidder, Houtkin knew that he would win the bid and the house would be sold to him.
That is perhaps because Fannie Mae is flooded with foreclosed homes. Banks have also started taking over foreclosed homes and there is a glut of foreclosed property in the market. It has become a vicious cycle now what with falling home prices accelerating foreclosures. The excess supply will spell bad news for home prices. In Miami it is expected prices would fall by 33 per cent. This is amazing since prices here have dropped by already 50 per cent.
It seems that the crash in the real estate market is far from being over. An American preparing to buy a home should wait and watch.. The market will go down further.
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