Wave of Foreclosure Sales Could Hurt Prices

More foreclosures could move onto the market as borrowers fall out of the government’s loan-modification program. That, coupled with weak demand, could lead to lower home prices across the board, suggests an article in the The Wall Street Journal.

Over the past two years, the pattern has become clear: the more homes that are being sold by lenders, the faster prices will fall. Ivy Zelman, CEO of research firm Zelman & Associates, says that distressed sales could account for 50 percent of properties sold by the end of the year – unless conventional sales recover.

Neither she nor Glenn Kelman, CEO of Redfin Corp., believe that there will be massive declines in prices because homes are already undervalued in many areas, but Kelman suggests that the decline could be 5 percent to 10 percent.

Should the government intervene again? Susan Wachter, professor of real estate at the University of Pennsylvania’s Wharton School, says that could be necessary if the bank sales trigger a downward spiral, “where price declines are feeding further price declines.”

Source: The Wall Street Journal, Nick Timiraos (09/13/2010)