Flood of Bank Foreclosure Property Pulls Down Home Values

by Simon Lindsay on Foreclosure Rates

A report released by the IHS Global Insight, a forecasting firm, showed that property values in Southern California have sunk to a record low. And ongoing increase in bank foreclosure property and worsening economic situation are expected to pull down further home values in the area.

According to the IHS, home prices in Los Angeles County are undervalued by 6 percent because of bank foreclosure property problem. The IHS calculation of home prices is based on the area’s incomes, interest rates, market discounts, population density and historic premiums.

IHS also reported that Orange County’s properties are undervalued by 11 percent while Inland Empire is 16 percent undervalued. But the worst undervaluation is experienced by San Diego with 21 percent and San Francisco with 25 percent below normal.

Director of the University of Southern California’s Lusk Center for Real Estate Richard Green said that houses away from the coasts are becoming cheaper. He pointed out that properties in inland areas are bargains in proportion to rents and income, adding that some properties are even selling less than their construction costs.

Green is doubtful whether California would be able to overcome its bank foreclosure property crisis considering the state’s inability to resolve its budget problem and the increasing unemployment rate.

California Employment Development Department’s April data showed that the state’s unemployment rate was 11 percent, the fifth highest nationwide.

Meanwhile, IHS said that it is too early to tell if the housing market has reached its bottom as joblessness continues, bank foreclosure property rate remains elevated and consumer confidence is low due to economic uncertainties.

Industry experts believed that California’s housing market needs to trim down its backlog of bank foreclosure property and prevent the over 100,000 possible foreclosures. MDA Dataquick noted that in the first quarter of this year, 135,431 homeowners are in default, which is the start of the foreclosure process.

On the other hand, foreclosure properties are usually sold at bargain prices by lenders who do not want to be burdened with a large inventory of abandon and vacant repossessed homes. This development subsequently pulled home prices down.

Furthermore, the purchasing ability index of the National Association of Home Builders rose to a new height with 73 percent of properties sold in the first three months of this year affordable to families who are earning the $64,000 average median income.

Experts are one in saying that the housing market’s recovery depends on how the state address its bank foreclosure property and unemployment crisis.