Could Short Sales Be to Blame For Poor Housing Prices

If the housing market was ‘suppose’ to have bottomed out in April, 2009 than why is the market still very unstable?

This is an excellent question and a likely suspect is what industry experts call the ‘Short Sale’.

“Economics tells us that if inventory goes down, prices will go up. This is not the case in Quincy. Housing prices continue to stay par or below to previous month’s averages.

This is because the short sale has now reared it’s full doubled edged character. Yes, short sales liquidate housing inventory, but they just may be a downer for the local market. Quincy agents have been pricing the short sale below market value in order to attract buyers. Since to a lender there is a calculated value on the profitability of doing a short sale; Quincy homes are often selling for 80% of their true market value.”

Short sales maybe a great opportunity for distressed home owners, but for Quincy home owners that want stability and home price appreciation they are horrible. It all has to do with cost analysis. If a foreclosure (i.e. including attorney fees, maintenance fees, processing fees, etc…) is more costly than a short sale the banks will want to settle.

On average foreclosing on a property costs the lender approximently 80-85% of the home’s fair market value. Quincy Real Estate agents understand this so they keep pricing properties at 80-85% of fair market value. This way they can kill two birds with one stone so to speak.

They will attract buyers that will stick through the short sale process (no easy task considering short sales do take some time to get approved) and they will sell the property quickly.

If Quincy homes continue to be priced at 80-85% of fair market value month after month appraisals begin to drop. Appraisals are all based upon the price of a comparable (like property in the neighborhood that just sold). When the only comparable properties that an appraiser can analize are short sales that have been selling for 80-85% of market value current Quincy homes for sale develop low values.

Banks conduct appraisals too!! This is one of the major criteria they use for determining the suitability of a particular property for a short sale. It all becomes a downward spiral that will not stop until pre-foreclosure inventory is liquidated.

When exactly that inventory will be depleted is a question that is still up in the air. A general consensus in the Quincy Real Estate market suggests that inventory will start to normalize sometime next year (possibly April, 2010). Still, lenders are becoming more effective with the short sale processes. Some Quincy short sale properties are closing within a month.

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