Foreclosures Causing Real Estate Prices to Drop in 24 Cities

Posted in Foreclosures, October 3rd, 2008 |

Foreclosures have caused real estate prices to drop in 24 of the 25 metropolitan areas in USA from what it was one year ago.

The biggest drop was noted in Las Vegas with a slump of 33%. A drop of 28% was noted in Los Angeles, Phoenix, San Francisco and Sacramento. Of the five worst performing markets lashed by foreclosures California tops the list.

Michael Feder of Radar Logic says that the purchasers are getting more and more shy about buying houses. The talk about drop in the real estate is keeping them away.

The number of foreclosures in the country increased to a record of 2.75% of the entire number of mortgages during the second quarter this year according to Mortgage Bankers Association. The foreclosed houses are usually being sold at 20% discount as per survvey conducted by Lehman Brothers Holdings Inc. These discounts are pulling down the prices of those units that are not coming from the foreclosure category.

Although the House rejected the bailout bill of $700 billion, the Senate passed it on October 1st. Pressure is being put on the House of Representatives to reconsider the matter. The earlier version had been rejected. The legislation will permit the government to purchase the soured assets of the financial houses that were in trouble. The House Republicans favoured two clauses – raising the limit on the amount the FDI insurance levels and authorizing the regulators to check asset-valuing rules. The uncontrolled assessment of property is being blamed for the foreclosure crisis.

The bill that will struggle through the Congress will have a dramatic impact on the housing market. Three foreclosure tides hit the country according to Moody’s Economy. The first one rushed in during the first half of 2006 when the investors realized that the boom days of housing was over and walked away. The second one hit the country in 2007 when those who had taken sub-prime mortgages during 2005 and 2006 were faced with steep rise in interest rates. Unable to cope with it they fell into foreclosures. The third wave is due to falling real estate combined with rising unemployment. California has noted the biggest fall in prices.

The only exception is Milwaukee that saw the price of houses increase by 2.9% in July in comparison to what it was in July 2007. Charlotte too in North Carolina saw a modest increase of 1.5%.