Bargain Bank Foreclosure List Holds Back Home Market Recovery

by Simon Lindsay on Foreclosure Crisis

Properties on bank foreclosure list still have a significant share in home sales, with one out of three houses sold last month was a repossessed home.

Data released by the National Association of Realtors showed that sales of existing houses increased by 2.4 percent in May from April, marking the third consecutive month that home sales inched up.

However, industry experts noted that the growing number of properties on bank foreclosure list still accounted for a significant portion of home sales last month. They also pointed out that homebuyers are paying high loan rates while new property appraisal rules are causing delays in the housing market.

Experts believed that all these factors are holding back the recovery of the housing market. According to data, home sales increased to 4.77 million in May, from 4.66 million the previous month.

The median price dropped by 16.8 percent to $173,000 on a year-to-date basis. The drop in median price was attributed to the increase in the number of first-time homebuyers and investors who grabbed bargain-priced properties on bank foreclosure list.

Meanwhile, a home price index by the government showed that market prices were flat from March to April. However, the home price index only measures the home values of properties with government-supported loans. It did not include the growing number of foreclosure properties.

The housing bubble is one of the major contributors in the economic and financial crisis. And industry experts agree that the real estate market recovery is being hindered by languishing economy.

The massive layoffs across the country are forcing thousands of homeowners to default on their monthly mortgage payments. Currently, the unemployment rate is pegged at 9.4 percent and is expected to peak by mid-2010 to be followed by foreclosures after six months.

HIS Global Insight economist Patrick Newport pointed out that home sales could drop by another 9 percent, adding that things could still get worse.

Another factor that holds back the recovery of the housing market is the rules covering property appraisers. According to mortgage brokers and real estate agents, the rules, designed to address the conflicts of interests surrounding the property appraisal process, resulted to low appraisals.

Appraisal Institute director of government relations Bill Garber said that the new rules for appraisers should not be blamed for the slow recovery of the housing market where prices are falling drastically and the number of properties on bank foreclosure list growing steadily.