OXFORD — The latest FNC Residential Price Index (RPI) indicates that U.S. home prices declined steadily in the last half of 2011. Since July 2011, prices on non-distressed properties (excluding foreclosure sales, REO sales, and short sales) have fallen 4.5 percent — averaging nearly 1.0 percent per month.
The persistent downtrends in home prices are driven primarily by conditions in the distressed market where the excess supply of foreclosed and REO properties, many vacant and neglected, continue to place downward pressure on home prices.
The overall economy, however, continued to grow at an annualized rate of 3.0 percent in the fourth quarter of 2011. Meanwhile, the labor market began to show signs of improvement. Nevertheless, high unemployment continues to constrain housing demand despite record lows of mortgage financing costs and home price affordability.
Using data through February 2012 on sales of foreclosed and REO properties, this update shows that:
• Distressed sales remain at elevated levels; more than 27 percent of total home sales in February are foreclosed or REO properties.
• Foreclosure and REO sales are climbing in recent months, but are down sharply compared to a year ago at 32.2 percent.
• Most major cities see some declines in foreclosure sales as a percentage of total home sales, led by Phoenix, Tampa, and Miami. In February, foreclosure sales in Phoenix were down to 24.4 percent from 48.4 percent a year ago, Tampa down to 20 percent from 39.8 percent and Miami down to 23.1 percent from 37.9 percent.
• The median foreclosure price discount in Q4 2011 is estimated at 18.4 percent, down 1.8 percent compared to the previous quarter, or down 1.2 percent from a year ago.
• Foreclosure discounts have declined to below pre-mortgage crisis levels for higher valued properties (initially purchased at more than $250,000), but remain at elevated levels for lower-valued properties.
• In Q4 2011, low-tier properties (initially purchased at less than $250,000) account for more than half of total foreclosure sales (55 percent). Middle-tier properties (purchased at between $250,000 and $500,000) make up about 36 percent, and less than 10 percent are high-tier properties (purchased at more than $500,000).
• In Q4 2011, the foreclosure price discount declined in a number of hardest hit markets, including Phoenix, Tampa, Miami, Las Vegas, and Atlanta, driven by sharp declines in the percentage of foreclosure sales.
Looking ahead, the housing market is potentially positioned for a recovery in 2012 as policies are being deployed to promote bulk sales of foreclosure and REO properties to investors for rental conversions. Because GSEs and the FHFA hold more than 50 percent of REO properties (source: Calculated Risk), the program is widely expected to help stabilize home prices and promote the housing recovery. Additionally, the recent $25 billion settlement between the nation’s five largest banks and state-federal government will also prevent some properties flowing into the for-sale market.
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