Foreclosure Freeze Said Not Likely to Boost Home Prices

By:: Kara Johnson | October 07, 2010

Quarterly home prices fell slightly in September, suggesting a possible early start to the usual market slowdown of fall and early winter, according to the real estate data company Clear Capital.

Home prices across the nation fell 0.2 percent compared to the previous quarter, according to survey results the company released today. Prices still reflected a 2.4 percent annual gain from the same period one year ago.

Saying that a “substantial price correction” had occurred in many housing markets, Clear Capital Senior Statistician Alex Villacorta said a lack of demand raises the possibility that weaker housing markets could experience a “double dip” renewed decline in home values. At the same time, he noted that prices nationally remain 10 percent ahead of their 2009 lows, making a return to new record lows this year unlikely.

Villacorta said he didn’t expect to see much of a impact from the current freeze on foreclosures by major lenders over widespread documentation concerns. Although the freeze should reduce the number of distressed properties coming onto the market, he said any positive effect on prices will likely be countered by the early start to the winter market slowdown this year.

REO saturation (percentage of sales represented by foreclosed homes) rose by a modest 1.1 percentage points compared to last month’s figures, to 23.2 percent. By contrast, REO saturation went as high as 41 percent in the first quarter of 2009.

The report predicts REO rates will likely decline in the near term, owning to the foreclosure freeze, but that over the long term the moratoriums will likely increase the backlog of foreclosed properties. That could potentially place renewed downward pressure on home prices if those properties start coming onto the market at a faster rate.

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