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Distressed Homes Poised for Recovery

NEW YORK (MainStreet) — Foreclosed homes are considered neighborhood home-value killers, since their low prices often drag down the prices of nearby homes as well. But that trend may be slowing, if not ending altogether, according to a new report from the real estate monitoring firm Clear Capital that says that distressed property values are on the rise.

For now, foreclosures remain a real weight keeping the U.S. housing market down. According to industry monitor RealtyTrac, one in every 593 U.S. homes received a foreclosure notice in April 2011. The group says that over 1.7 million homes have been foreclosed upon in 2011.

But the Clear Capital report gives hope for the future, maybe even in the near term. The firm says that U.S. home prices declined by 2.3% in May, but that “signs of market stability” are appearing on the horizon. Indeed April numbers showed a 4.9% decline.

“The latest Market Report results through May suggest that home prices are starting to ease back from the heavy declines seen over the winter,” explains Dr. Alex Villacorta, director of research and analytics at Clear Capital. “We are still far away from the strong demand needed to fully turn things around for the housing market; however it is clear from the initial spring sales data that prices are softening, suggesting stabilization in the market.”

Villacorta was especially optimistic about the upward trend in real-estate owned (REO) properties, which includes foreclosures and other lender-owned homes. “The median price paid for distressed properties has risen over the past three quarters, which is a good sign that the REO market segment is seeing increased activity toward the upper end of this space,” he said.

Clear Capital says that a strong summer selling season should boost home sales in markets whether or not they have high concentrations of real-estate-owned properties. The report notes that distressed property sales normally follow the strong spring and summer sales patterns of homes that aren’t in foreclosure, and this year should be no exception.

“This softening of price declines suggests prices are stabilizing as the typically stronger summer buying season approaches. Based on historical patterns, the non-REO (‘fair market’) segment increases its share of total sales volume in the spring and summer months,” the Clear Capital report says.

Just how strong the distressed property market picks up this summer is hard to estimate, the group says. Since the non-foreclosure home market is more seasonally structured (homeowners usually put their houses up for sale in spring and summer, the optimal buying seasons), but sales of foreclosures, by the uncertain nature of their fates, aren’t as structured, the report says.

That could either help or hurt REO sales, depending on how many distressed homes make it out of the foreclosure process and are out up for sale.

Still, as sailors at sea will say, any port in a storm will do. The Clear Capital numbers clearly show a stronger housing market, especially for foreclosed homes, in May than April. That could trigger stronger sales – and stronger home values – throughout the summer of 2011.

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