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Distressed Sales Distort Market Values

About 50 percent of nationwide transactions are sales of distressed homes, resulting in market distortions in otherwise stable neighborhoods, Robert Freedman reports in REALTOR Magazine.

The median national home price today is about $169,000, down almost 14 percent from a year ago and an estimated 30 percent from its peak. “We’re only capturing transaction prices,” NAR Chief Economist Lawrence Yun said, “and those prices might be 20 percent to 25 percent below actual values.”

Lenders add to the problem of market distortion by not refinancing mortgages of troubled owners. Not being able to refinance worsens a homeowner’s financial situation. The lack of reasonably priced financing for higher-cost homes also contributes to the problem.

If all of the incentives the government has put into place will have had several months to work, Yun said. If sales start picking up significantly, then prices should stabilize and trigger a broader economic recovery.

Yun forecasts that home sales in the second half of 2009 will be 10 to 20 percent higher than the second half of last year.

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