OXFORD — Despite recent upbeat data on new and existing home sales, U.S. home prices continued to decline in December due in part to increased sales of foreclosed properties, according to the FNC Residential Price Index (RPI).
RPI is a product of Oxford-based FNC Inc.
Driven in part by rising sales of distressed properties and higher foreclosure-sales discounts, home prices declined for the seventh straight month in December and suffered their largest one-month drop during the year. As markets approach new lows, the 2010 year-end home prices are now down more than 3.4 percent from January.
Of 30 major metropolitan markets tracked, 23 MSAs experienced price declines in December that averaged about 2.2 percent. Home prices in Atlanta, Chicago, Las Vegas, Orlando and Phoenix continue to drop rapidly year-over-year at rates in the double digits. Meanwhile, San Diego, Los Angeles and San Francisco markets have been among the best performing markets during the year, rising 5.1 percent, 7.8 percent and 8.1 percent, respectively, from a year ago. The three California markets continue to enjoy strong year-over-year growth despite the absence of a tax credit in the second half of the year — a stark contrast to many faltering recoveries among markets where the median price decline stood at about -2.9 percent.
The deteriorating trends in home prices arise, in part, from increased sales of foreclosed properties. As a percentage of total home sales (both new and existing homes), sales of distressed properties have increased steadily in recent months, rising from 23.5 percent in the second quarter of 2010 to 25.5 percent and 26.8 percent in the third and fourth quarters, respectively. This increase occurred despite a temporary halt of foreclosures by several major lenders concerned with potential legal implications of claims regarding insufficient due diligence. In the meantime, the foreclosure sales discount increased from about 36.5 percent in the second quarter to 39.2 percent and 40.8 percent in the third and fourth quarters, respectively.
More foreclosure sales are expected since various lenders announced in December that they would resume the process. Accordingly, the FNC RPI anticipates further downward pressure on home prices in the coming months. There is an upside: this trend will reduce the surplus of distressed properties and eventually bring the supply to levels in line with weak housing demand, paving ways for a more sustainable housing recovery later.