The general consensus is that foreclosures will soon pick up again, as lenders look to start getting through the huge backlog of troubled loans they have amassed over the last year and a half. This expectation has led to a number of analysts wondering what the impact on overall home prices will be.
RealtyTrac are projecting a 25% increase in the number of foreclosures this year, reports the Wall Street Journal. With many markets already saturated with foreclosures, this has led to speculation that discounts on REOs could soon grow even bigger than before.
Foreclosures are already going for considerable discounts. Take hard-hit Las Vegas as an example, where the average foreclosure is selling for approximately 6.1% less than non-foreclosed homes. Meanwhile in Florida, the average foreclosure discount for a Miami home is 7.1% off the going rate of a non-foreclosed home. In some parts of the country, this gap has grown even wider.
The Wall Street Journal warns in its article that a “spike in the sales of bank-owned homes would be bad news for other sellers.”
It goes on to point out that the surge in foreclosure sales will make it much more difficult for overall prices to increase overall, since this only serves to bolster sales activity at the lowest end of the market.
However, not everyone shares this weary outlook. Some experts are saying that discounts in distressed properties are unlikely to grow any higher.
Paul Dales, an economist at Capital Economics, told the Wall Street Journal that the increased inventories wouldn’t have much effect on prices.
“More often than not, prices are determined more by demand rather than supply,” he explained.
Dales points out that those areas seeing an increasing number of foreclosures will likely see an increased demand for REO homes in good condition, while for other properties a lower supply is expected. In addition, Capital Economics is forecasting many housing markets to begin recovering this year, something that should push up demand.