Foreclosures exerting pricing pressure on housing inventory

When individual homeowners aren't happy with the bids they receive on their listings, many simply pull them off the market to wait for a better day. But lenders don't have the same luxury -- they've got to get that inventory off their books as soon as possible. And, whereas a year ago they were somewhat aggressive on price -- listing at full market value -- today they've come to realize that the holding costs over time can easily eat into a higher price. Of course the pain is not being spread evenly -- it's mostly in those areas in which people caught housing fever and bought homes they couldn't afford. From an AP story:

A growing share of home sales are from foreclosures, especially in states hardest hit by the housing bust. In some parts of California lately, nearly 50 percent of home sales come from foreclosed houses.

The trend, which is putting additional downward pressure on home prices, is most notable there and in Nevada, Colorado, Tennessee and Michigan, but is also evident in Ohio, Georgia, Florida and Arizona, according to an Associated Press comparison of 2007 sales and foreclosure data. In Nevada, for example, 17.5 percent of home sales were from foreclosures, more than quadruple the number in 2006...

Homeowners who aren’t on a deadline to sell are yanking their properties off the market, and this means the remaining inventory is increasingly held by banks eager to unload foreclosed properties at fire-sale prices rather than carry the costs on their books.

Property values and local tax revenues are suffering as a result, consumer advocates say, especially in neighborhoods with lots of minority residents for whom lending standards were weakest...

The AP’s foreclosure analysis compared the annual rate of existing home sales in the third quarter of 2007 — the most recent quarter available from the National Association of Realtors — with state-by-state foreclosure sales data provided by RealtyTrac Inc. of Irvine, Calif. The analysis found:

In Colorado, foreclosure sales accounted for 15.6 percent of home sales in 2007, up from 10 percent in 2006.

In California, the number jumped to 11.3 percent from 3.7 percent.

In Tennessee, it rose to 10.6 percent from 5.2 percent, and in Michigan it climbed to 9.3 percent from 4.9 percent.

Nationwide, foreclosure sales grew to 4.7 percent of existing home sales, up from 3.3 percent in 2006.

The analysis underscores that the housing bust is having the most severe impact in areas where lending standards were the loosest, or where the economy is especially weak. In 18 states — including places as diverse as Maine, New Mexico and Kansas — foreclosure sales made up less than 2 percent of total sales...

In December, 46 percent of homes sold in the Sacramento area and 31 percent in the San Diego area had gone through foreclosure, up dramatically from about 4 percent a year earlier, according to San Diego-based DataQuick Information Systems, a real estate information firm.

Banks, faced with the mounting costs of holding properties, are cutting prices. The average price of a foreclosure sale nationwide dropped about $1,000 last year to about $226,000, according to RealtyTrac.

The bright side?

While foreclosure sales are bad news for homeowners in neighborhoods with high foreclosure rates, they are a boon for well-financed buyers looking for properties at bargain prices. And in broad terms, economists view them as part of getting back to more realistic prices after years of excess.