Foreclosures Are Pulling Down Real Estate Prices

May 22nd, 2009 | Tags: Foreclosure

The scenario is quite bleak what with a vast stock of foreclosed homes lying around in the US market. Banks have not listed these homes for further sale. As the number of foreclosed homes increase, real estate prices are coming crashing down.

According to Rick Sharga, vice-president of RealtyTrac there is about 600,000 foreclosed properties across the nation. Of these, 80,000 homes are in California. This is distressing that banks have not done anything about these homes, she says. This can drive property prices further south.

RealtyTrac has pointed out in a study that only 30 per cent of foreclosed homes in California are up for sale. The remaining, according to industry coinage, is part of the “shadow inventory.” Celia Chen, a director in Moody’s economics.com says there are more foreclosed homes that the economy has not kept record of. If they are put on sale, then home prices would come crashing down ever more. According to statistics available with DataQuick about one-third of foreclosed homes are not in any record. These homes which are now part of shadow inventory have not been resold.

In the period between January 2007 and February 2009, banks took over 51,602 houses and condominiums in Bay area. But only 30,823 houses were not resold, leaving a stock of 20,000 homes.

Real estate developers say that foreclosed homes are generally put on sale within 60 days of bank taking over. These homes get offers from buyers within a fortnight and the deal is closed within 90 days. But taking a look at the foreclosures reveals a sad tale of what the banks took possession of and what was resold. There is a yawning gap between the two.

A spokesperson for Chase bank, Tom Kelly, however, says that banks are selling the foreclosed properties timely. He says that the objective of banks is not to keep the foreclosed properties but to sell them as quickly as possible. He says that the inventory may be growing because suddenly the numbers have grown.

Another DataQuick study has shown that only 65.5 per cent of homes being repossessed have been put on sale. The study found that only one-fifth of foreclosed homes came up for resale. In fact, the shadow inventory in California comes to 100,000 homes.

So what are the reasons behind not putting off the sale of foreclosed homes? The main reason is that the entire process of putting a home on sale is very time consuming.