What's driving home prices down?
Used home sales rose 2.4% in May, but prices continue to take a beating. Stacey Vanek-Smith reports on why prices are still falling.
A realtor sign advertises a reduced price in front of a home for sale in San Anselmo, Calif. (Justin Sullivan/Getty Images)
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TEXT OF STORY
Kai Ryssdal: On the larger economy, there were some small signs of promise today. They are still down year over year, but used home sales for May were up nearly 2.5 percent from April, when they were in turn up from March. But prices continue to take a beating. We asked Marketplace's Stacey Vanek-Smith to figure out why.
STACEY VANEK-SMITH: The median home price is down about 17 percent from last year. The reason? Foreclosures, of course. Buyers are bargain hunting. And owners of more expensive houses aren't selling unless they have to. But there's another problem says economist Lawrence Yun with the National Association of Realtors. He says appraisals are coming in low.
LAWRENCE YUN: The buyer and the seller agree to a price. Yet when an appraisal is coming in, it's coming in much lower than the agreed price.
If the appraiser values the home at less than what the buyer agreed to pay, the buyer, not the mortgage lender, has to make up the difference.
MARIANNE Snygg: I heard about one just last week.
Colorado realtor Marianne Snygg says this is causing deals to fall through.
Snygg: The buyer will need to come out of pocket for the difference and a lot of times the buyer can't.
Or won't. Columbia University housing economist Chris Mayer says appraisals are coming in low because home values are still falling.
CHRIS MAYER: I think that's a bit like blaming the messenger for the bad news. Prices are falling in housing and down payments are unfortunately going to be high, and it's going to be very hard to complete transactions. So I think yelling at appraisers is misplaced blame.
Mayer says foreclosures are the real culprit in driving down prices. And, more of those are on the way. As long as bargain-basement homes are coming onto the market, all buyers will be looking for deals. And as long as that continues, Mayer says, prices have nowhere to go but down.
I'm Stacey Vanek-Smith for Marketplace.
Comments
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07/12/2009
How can you possibly consider a short sale in an appriasal when the short sale price is based on the loan amount due to the bank and not market value? There is nothing representative of market value in a short sale. The only thing you are doing is causing the market to decrease even more. It's great to make it more affordable for people to buy a home, but what about the hard working people who have been paying their mortgages responsibly and now cannot get a decent price for their home? I guess they won't matter until there is no one left to pay for all of our welfare.
From Oakland, CA, 06/25/2009
Will you just stop talking about low house prices as being a bad thing. How about thinking of a house as an affordable place to live, not a speculative investment? What a concept!
Cheap housing will solve a lot of problems. Buckminster Fuller came designed cheap modular housing using grain silos as his starting point. If food prices dropped no one would be complaining. Housing is a necessity, not a luxury. Please stop with this perspective that affordability is negative.
06/24/2009
No, Stacy, it's not "Foreclosures, of course." Do you know the difference between cause and effect? Foreclosures are symptoms of the problem. Not the cause.
06/24/2009
Saying that "the appraiser informs the buyer/seller of the real value of the home" implies that appraisers produce completely objective, calculated results. This is entirely impossible. The factors are totally subjective. An appraisal is just a best guess with lots of data to back it up. Data can be produced to back anything up.
From denver, 06/24/2009
People get angry when appraisals take into account foreclosure and short sales, but they are a part of the picture. It is very dishonest to ignore comparable home sales just because the home was foreclosed. Appraisal values SHOULD include home grade (as in quality of construction) and SHOULD also consider condition of the home. IF your appraisor is considering sale prices of similar sized homes, with similar quality construction, in similar area, with similar upkeep....it should not and ddoes not matter if the comp was a foreclosure. as for the whole "the appraiser wrote the message"....not really. The appraiser informs the buyer/seller of the real value of the home. That is their job. Unfortunately people got used to the idea that the appraiser's job is to agree with the seller.....and that is not the case.
From pleasanton, CA, 06/24/2009
I keep hearing talk about the housing market being dragged down by this and that. I'm afraid 'Market Place' as many other new organization is only trying to prop up this market housing. How about 'Market Place' making a study about the median family income and median house prices in certain areas and they will see that house prices still have a lot to fall before the becoming normal. Also, if the houses were such a great bargain, they will 'fly of the shelves'. Cheers!
06/24/2009
The real issue often times is that the appraisor is not comparing apples to apples. A foreclosed property is a fire sale. Often is isn't well maintained and needs repairs. The bank is a total pain the the butt to deal with from the buyer's point of view, so the price is going to reflect those discounts. A house on the market by a willing seller looking to move out or move up, but not forced to do so, is usually well maintained. It is a different product. So I agree somewhat with the first poster - isn't a sale by definition creating the market (willing buyer and seller)? If appraisors are consistently killing deals, then they are interfering with the market - akin to a tax. Perhaps the real story also is that banks are just getting a lot stingier with their capital after being excessively lax in previous years.
06/23/2009
Wouldn't it make more sense that appraisers are drawing the market down rather than foreclosures? Surely foreclosures add a glut to the market and can have a negative impact on a neighborhood's value, but the story above (and plenty of anecdotal evidence I've heard) describes a situation where the appraiser stops the sale, not lack of willingness to pay by the buyer. It can not be a case where the appraisers are simply messengers when they are the ones typing out the message.
From CA, 06/23/2009
So what this article saying is the bubble time prices were the NORMAL prices. Current prices are depressed prices caused by foreclosures.
From HI, 06/23/2009
Within the spooky world of real estate it is a spike in used home units sold that signals a volume reversal of new and used home price trends. Would you guess that 2.36% is hardly a spike, Jones?
U B JUDGE
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