Where US Home Sales are Rising
Motivated sellers in these 10 cities are fueling deals and hastening recoveries.
Something funny’s happening in Las Vegas. Home sale prices from last year are down 28%, but home sales are up 15%.
The reason? Motivated sellers–those in distress or foreclosure–or banks with too many homes on the books are slashing asking prices in order to unload their properties. Motivated sellers in Las Vegas accounted for 64% of sales in October, the highest rate in the country according to Radar Logic, a New York-based derivatives firm that provided the data for this story.
That means buyers are getting deals and hastening Las Vegas’ recovery. In fact, buyers are eating up inventory fast enough that the discounts offered by motivated sellers are tightening as supply contracts. The difference between what motivated sellers have to offer and what non-motivated sellers can command has held steady for three months at a 17% discount, versus the 33% national average. So while it’s still a buyers’ market, prices have dropped to a level that’s stimulated demand.
“There’s a pretty active housing market, it’s simply at a lower-priced inventory,” says Michael Feder, chief executive of Radar Logic. “And there are now bidding wars taking place over homes in foreclosure.”
Other cities are experiencing the same. In markets flush with motivated sellers, such as Phoenix and San Diego, transactions are up 10% and 90% respectively, as buyers are starting to compete for available deals.
All are bright spots in an otherwise dark economic climate. While in many cities, potential homeowners are waiting to see how low prices will fall before buying, in places with highly motivated sellers, prices have dropped far and fast enough to rekindle sales. While foreclosures continue to rise, and Credit Suisse estimates 8.1 million more of them through 2012, financially solvent buyers are finding good deals at price points and mortgages they can afford.
“We’re clearing out the bad news,” says Kiva Patten, a director at Merrill Lynch specializing in housing derivatives. He says that continued price drops and uncertainty have kept many out of the marketplace but that some markets have reached a price level that’s drawing in buyers. “If everyone is expecting bad news, when you get the bad news, and it’s out of the way, that’s good. Individual buyers start to come back into the marketplace.”
It’s easy to understand an uptick in motivated sales. Banks that have repossessed homes in foreclosure and homeowners with soon-to-reset loans are ever more eager to get out of the market. Especially with rising unemployment, now at 7.2% up from 4.9% from a year ago, banks’ balance sheets and individuals’ cash flows are threatened.
One good thing about the hurried sell-off is that in some cities, like Los Angeles, the difference between what motivated sellers have to accept and what non-motivated sellers are taking has narrowed. A falling discount doesn’t mean a price recovery is around the corner, but it does suggest a stabilizing market. In March of 2008, L.A.-area motivated sales prices were 25% below non-motivated prices. Now, that’s dropped to a 22% discount. However, even if prices flatten and hit the proverbial bottom, don’t expect a sharp, fast v-shaped recovery.
Matt Woolsey, Forbes.com
Jan 15th, 2009
