Tightening home inventory causing price appreciation

With low values keeping homeowners from putting their properties up for sale, this thinning inventory resulted in price increases in May.

With low values keeping homeowners from putting their properties up for sale, this thinning inventory resulted in price increases in May.

Average prices for non-distressed properties increased 1.7 percent in April from the previous month, according to the latest Campbell/Inside Mortgage Finance HousingPulse. While there are many factors such as a weak economy holding prices back from appreciating faster, it was noted that the presence of real estate-owned properties has played a major role.

During the same period, the average price for a short sale fell 0.7 percent, while the average damaged REO property price increased 1.8 percent. Real estate data shows that the sales price for a movie-in ready REO rose 1.5 percent.

The increase in REO prices was spurred by fewer current homeowners listing their properties for sale, since they don't want to take a loss on their investments. As a result, more prospective buyers turned to distressed properties. Since the housing market's collapse, values have fallen by more than 30 percent in some areas, crippling many households with negative equity. Many of these underwater borrowers will be unable to sell until they have paid off more of their mortgages.

Additionally, flaws throughout the home appraisal process are also believed to be keeping households from listing their homes on the market, the report said. In fact, a significant share of real estate professionals in Florida feel that inaccurate appraisals are preventing natural appreciation throughout the state.

Meanwhile, as the constricted inventory resulted in a slight appreciation of non-distressed property prices, this lack of homes proved to be a double edged sword. With fewer properties on the market, the existing-homes sales rate fell 1.5 percent in May from the previous month, according to a report from the National Association of Realtors.

"The slight pullback in monthly home sales is more likely due to supply constraints rather than softening demand," said NAR chief economist Lawrence Yun. "The normal seasonal upturn in inventory did not occur this spring. Even with the monthly decline, home sales have moved markedly higher with 11 consecutive months of gains over the same month a year earlier."

The industry group found that between April and May, the existing-property inventory thinned 0.4 percent to an estimated 2.49 million units. At the current sales rate, this represents just a 6.6-month supply. Despite the marginal decline, the inventory shrunk 20.4 percent from a year earlier.



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