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What If There Weren't All Those Foreclosures?

What would your home be worth if there weren't all those foreclosure sales on the market, dragging down prices? It's a natural question for any homeowner who is not in default, not upside down on their mortgage and not willing to sell at a desperation price.

The bad news is your value would still likely be down a lot from the peak of the market.

Distressed home-sales--foreclosures and short sales--magnified the price decline in California since 2006 by about 5.4 percentage points, according to a new research paper from the Federal Housing Finance Agency, which regulates Fannie Mae and Freddie Mac. The study, by Andrew Leventis at FHFA, attempts to quantify the effect of distressed home sales on home price measures such as FHFA's House Price Index, and it focuses on one of the states hardest-hit by foreclosures.

We're not all in California, of course. Nor are we all living in a foreclosure hotspot within the metropolitan Washington area. If you live in a neighborhood with foreclosures dotting every other block, those distressed prices will have a greater effect on your own home's value than they would if you live in one of the Washington-area neighborhoods where buyers are still competing to get at a limited supply of highly desirable homes.

Even adjusting for the 5.4 percent difference, FHFA said non-distressed home sales had roughly a 36 percent price decline since the market's peak in 2006. When you include distressed sales in the mix, values fell about 41 percent.

A bunch of decidedly mediocre housing market reports came out over the past couple of days. As The Post's Renae Merle reported, the National Association of Realtors said the number of existing-home sales rose 2.9 percent in April, compared to March. That's good news, but it was still down 3.5 percent from a year earlier, and median prices were down 15.4 percent compared to a year earlier. Perhaps the worst news: The inventory of homes for sale nationwide rose to 10.2 months' worth at the current sales pace, up from 9 months' supply in March. That's a long way from the roughly 6 months of inventory that would mark a healthy, balanced market, and the numbers are heading the wrong way.

Renae also reported that prices in the Washington area were down 18.4 percent in March, compared to a year earlier, according to the Standard & Poor's/Case-Shiller index.

FHFA reported yesterday that falling prices in March wiped out price gains from January and February, bringing seasonally adjusted home prices for the first quarter 0.5 percent below the fourth quarter of 2008.

Share your reports from the field. What are you seeing right now with prices and supply of homes for sale?

By Elizabeth Razzi  |  May 28, 2009; 6:00 AM ET
Categories:  Foreclosure , Statistics , The economy , The market  
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Comments

Down and Downer. The N.A.R. already the bad rep sticking their dirty little fingers in the loan crisis with the pump and dump 45 day escrow. Just think their statistics viewing the public as chop liver.

Posted by: steveherb | May 28, 2009 11:45 AM | Report abuse

I keep seeing the sale prices decline in my neighborhood. But the current prices are still nearly 50% more than I paid 8 years ago. It's all relative. When I look at where we were in the last few years, the current price seems low. But when I think that my previous home appreciated about 10% in 7 years, and this one has effectively appreciated 50% in 8 years, that sounds a lot better. And from the perspective of a prospective seller/buyer, the price of homes where I am looking to buy appear to be declining at about the same rate as the home I am selling.

Posted by: janedoe5 | May 28, 2009 11:55 AM | Report abuse

How reliable are these research papers or studies? They seem to capture and analyze data that is not specific enough for anything other than a macro view a regional or national housing situation -- certainly not specific enough for a specific buying/selling decision. And, the macro analysis in reports/studies appears materially different. I've been looking at the public data from the Center for Regional Analysis (http://www.cra-gmu.org/). Is this data/analysis any better or accurate than Case/Shiller or the FHFA cited? Or, just different? Which source of information to you regard as the most reliable?

Posted by: dhouse1 | May 29, 2009 8:13 AM | Report abuse

You raise interesting questions. These analyses are all being done by the best economists in the business; they're just trying to measure things different ways. I think we have to follow each of them as pieces of the puzzle. The CRA follows local numbers from MRIS (the local multiple listing service. Case-Shiller emphasizes 20 big cities and is heavily influenced by foreclosure sales. It includes jumbo mortgages. FHFA has less emphasis on foreclosures, but is limited to non-jumbo loans. Watch how they're all trending more than the monthly blips.


Posted by: Erazzi | May 29, 2009 8:33 AM | Report abuse

With all the gloom and doom in the residential marketplace for the last couple of years, how about an upbeat story about survival, innovation and fortitude.

Miller and Smith is a privately owned midsized builder / developer that has been operating quietly in the D.C. metro area since 1968.

We just finished May with 65 net sales, our best month in 13 years. People are ready to exhale. Why not give them something positive to read for a change.

Posted by: dexter9822 | June 1, 2009 2:17 PM | Report abuse

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