Housing Market Finds Silver Lining

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NEW YORK (MainStreet) – It’s hard to find a silver lining in the dismal reports from the housing market these days, but a closer look at the latest price study shows that prices for “non-distressed” properties may be stabilizing.

The numbers suggest that homebuyers should carefully assess risks and opportunities on a neighborhood by neighborhood basis, as stability can change from one location to another.

The study, by housing data monitoring firm CoreLogic, shows that nationwide home prices declined by 6.7% from February 2010 to February 2011, the seventh monthly decline in a row. But the overall figure is heavily influenced by the plunging prices for “distressed sales” such as foreclosures, short sales and other “real-estate owned” properties, or REOs.

When the distressed sales are removed from the data, CoreLogic finds the average home price fell only 0.1% in the year ending in February. Typically, such distressed properties are cases where the homeowner has stopped making payments, usually causing the lender to take over the property and dump it on the market at fire-sale prices.

In one of the most dramatic local examples of the trend, overall home prices fell by 10.4% in the Chicago-Joliet-Naperville, Ill. area, but dropped only 0.4% with distressed sales excluded. In Florida, overall prices dropped 11.2%, but only 0.8% when excluding distressed sales. In West Virginia, overall prices actually went up, by 5.4%. Excluding distressed sales, prices there jumped an impressive 8.2%.

“When you remove distressed properties from the equation, we’re seeing a significantly reduced pace of depreciation and greater stability in many markets,” said CoreLogic chief economist Mark Fleming. “Price declines are increasingly isolated to the distressed segment of the market, mostly in the form of REO sales, as the stock of foreclosures is slowly cleared.”

Many prospective homebuyers are waiting for the market to stabilize, as no one wants to buy a home only to discover it is worth thousands less a year later.

But some people, such as those relocating for a job, have little choice but to buy now, unless they find an abundance of appealing, affordable rental properties in their neighborhoods of choice. Of course, buyers with a speculative streak see a falling market as a buying opportunity.

So what should the ordinary, non-speculative buyer do to minimize the risk? Follow these tips:

Study the neighborhood. Housing markets are very local, and neighborhoods that have lots of distressed sales now may well have many more in the future, causing prices to drop further. Your real estate agent should be able to tell you how prevalent distressed sales are in the area, and you can find foreclosures on a map at zillow.com. It also pays to study the local economy, as a high or rising local unemployment rate is a harbinger of distressed sales and falling prices. If the area depends on one or two big employers or industries, find out how they are doing.

Think long-term. The longer you will own your new home, the better your chances of weathering any temporary dip in housing prices. If you expect to be in the new location for only two or three years, renting may be your best option. If you expect to be there for five/six years or longer, buying will probably be better than renting. Think about buying a home that will suit your future needs as well, like space for a growing family, or a location convenient for commuting if you change jobs.

Spend less. Although an inexpensive home can fall in value just like an expensive one, the damage would be smaller and in any case with a smaller mortgage, you’ll last longer if your income drops. If you are forced to sell after a drop in home prices, it will be easier to draw on other assets to make up the difference between the sales proceeds and mortgage balance the lower your purchase price was. That would allow you to avoid a big black mark on your credit history, which will make it easier to buy your next home.

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