Why are Home Values Declining Despite Strong Buying and Low Inventory?

April 5, 2011 at 2:12 pm Leave a comment

By: Maria Hass

On April 2, 2011, the Chander edition of The Arizona Republic reported that Chandler’s home supply has decreased sharply.

But many area home values are still declining. Except for Sun Lakes, where the median rose 10 percent and for ZIP Code 85248, the article said the majority of the city’s home prices fell by an average of 6 to 11 percent from 2009-2010.

It usually follows that when demand is up and supply goes down, prices go up. In this situation, the demand for homes has increased but the prices fell. Why is that?

1. Investor Buying: Most houses are bought by investors who are price driven and looking for a “steal deal”.

2. Distressed Homes: A majority of the homes on the market are foreclosures and short sales. Foreclosed homes are repossessed by the banks, who are in a hurry to sell. These homes are listed at “buy now” pricing levels and are being sold below market value. There is a significant inventory of foreclosed homes, which is expected to continue — with many short sales declined by banks eventually becoming foreclosures.

3. New Listings are Old: On the flip side, some lender-owned homes are priced ridiculously high and do not show well when they first go on the market. The price ends up being reduced many times and the listing becomes stale and unattractive. The home eventually sells for a lot less than what it would have had it been priced right at the beginning.

4. Loan Requirements: FHA, VA and other loans require home repairs before loan approval. In some cases, these repairs are extensive, time consuming and either the buyer sometimes cancels because of a lack of time or money to complete the required repairs. The property goes back on the market and sells for a much lower price.

5. Appraisal: Lower appraisals end up reducing sale prices.

6. Short Sales are Long Sales: Many short sales take forever to get approval. As the time drags on, the prices come down.

Unless the real estate market is dominated by traditional sales, it will be difficult to see a “true appreciation” of home values. Unlike distressed homes, the homeowner of a traditional sale cares about pricing the home at the highest possible value. Most of these homes sold by homeowners are well-maintained and show well.

Entry filed under: Arizona Real Estate, Chandler Real Estate, Foreclosures & Short Sales, Phoenix Real Estate, Real Estate Deals. Tags: , , .

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