Hardest and Easiest Places to Sell a Home
Francesca Levy, Forbes.com
Oct 3rd, 2008
As the dismal U.S. housing market slides further downhill--home prices in July posted a 16.3% annual drop--some sellers are unloading their homes to bargain-hunters.
But in cities like Seattle, Jacksonville, Fla., and St. Louis--the hardest major cities in which to sell a home--even sellers who have substantially lowered their prices aren't finding it easy to move their houses.
In others, including Philadelphia, Sacramento, Calif., and Las Vegas, plummeting home prices spurred by high foreclosure rates have added more reasonably priced houses and condominiums to the market and sparked a rise in buying and selling.
Factors like banks' reluctance to lend, the slow movement of foreclosed homes through some state systems and gun-shy buyers in others have restricted selling in many cities. In others, income-squeezed households have a better chance of turning their homes to cash, even if it's not as much cash as they'd like.
In the second quarter of 2008, the median price of a single-family home dropped 23.6% in Las Vegas from the previous year, to $235,300, according to National Association of Realtors reports. In Washington, D.C., prices fell 16.8% to $370,300, and in Chicago that number went down 9%, to $257,600.
Behind the Numbers
Radar Logic, a New York City-based real estate data and analytics company, today released housing sales transaction numbers for a sampling of homes in 25 of the country's major metropolitan areas. This story is based on these numbers.
Of the cities measured, Philadelphia has had by far the steepest increase in home sales, with transactions more than doubling from the same time the previous year. Seattle marks the other end of the sales spectrum, having seen its transaction numbers drop by 43.7% from the previous year. Radar records transactions for sales where complete data were provided.
Although Philadelphia made the top of Radar Logic's transaction count list in July, Michael Feder, Radar's president and CEO, warned against interpreting too much from the sharp rise in percentage of transactions for that city.
"It can mean that there's a more stable market in Philadelphia," he says. "But sometimes a county will go dark for a month and not file any data from public records sources. Philadelphia is not wonderful in terms of this. So there are not necessarily a lot more transactions there."
Sacramento, which saw swift sales in July, also had the greatest second-quarter drop in home prices from the previous year of any metropolitan area, with the median price of single-family homes down 35.6% to $229,500. There, and in other nearby cities hardest hit by the subprime disaster, houses have started to move in part because the effects of the foreclosure crisis have had more time to set in.
"In the places hardest hit a year and a half ago, prices have come way down," says Glenn Kelman, CEO of online real estate broker Redfin Corporation. "In San Diego, Los Angeles, Las Vegas and Sacramento, they have all acknowledged the reality of home prices."
But in Miami, also a foreclosure-rich area, buyers seem to be holding out for a better deal. Here, the number of sales has dropped 23.2%.
"Miami has a significant oversupply, and people are somewhat waiting it out," says Rachel Drew, a research analyst at the Harvard Joint Center for Housing Studies. "There's a lot of stock to move and people are waiting to see where the bottom is."
Foreclosures play a complex role in the rate of home sales. In cities like Sacramento and Phoenix, foreclosed homes have flooded the market with discounts.
But real estate laws can have as much to do with homes hitting the market as foreclosure rates.
In California and Arizona, the law restricts deficiency judgments--a court's ability to collect on the remaining value of a foreclosed home once it has been sold. In these states, homeowners with negative equity can walk away from the property, resulting in what some call "jingle letters," house keys sent to the bank in an envelope. While the practice has consequences for lenders and borrowers, it speeds turnover in a foreclosure-ridden market.
"Lenders get the house back very rapidly and can move to sell the house very rapidly," says Anthony Sanders, a professor of finance and real estate at Arizona State University. "In other states, deficiency judgments can slow foreclosure markets to a crawl. You go to Georgia and it's much tougher."
In Phoenix, which had 9.4% more recorded transactions than the previous year, many foreclosed homes weren't on the market until recently. Sales of homes owned by banks and other financial institutions were nearly 10 times higher in July than they were the previous year. Sanders says that early in the crisis, banks held on to foreclosed properties.
"Banks, like everyone else, were hoping for a turnaround in the housing market. They were hoping that they could sell a house for more," he says. "As the evidence comes out that this isn't happening, they've wised up and started reducing house prices to get it out of their inventory."
Radar Logic's Feder says that increased sales of foreclosed homes in places like Phoenix and Los Angeles will be good for the market.
"Median prices are affected by these heavily discounted homes. As foreclosed homes are absorbed, we will be left with nonforeclosed homes, and we will start to see stability in the housing market," he says. "The question is, how long will that take?"
A handful of major cities around the country have seen a sharp rise in transactions, but most are still waiting uneasily for the market to bottom out and buyers are finding loans increasingly difficult to get. In some west coast and Florida cities badly affected by subprime loans and dropping house prices, foreclosed homes are being sold at a faster rate and may be moving those cities toward a housing recovery.
But in New York, whose economy is expected to be hit hard by troubles in the financial services sector, housing prices have just begun to drop, down 5.3% in the second quarter. Sales have dropped 24.5%, suggesting the worst may be yet to come.
Even in stable markets, "less is happening," says Feder. "It doesn't necessarily mean buyers have plummeted, it just means buyers and sellers still don't agree on prices."
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