Short Sales Driving U.S. Home Prices Down

U.S. home prices fell 6.7 percent in February compared to the previous February, according to a report issued Friday from CoreLogic, a decline driven mainly by the influx of distressed properties on the market. If foreclosure sales and short sales are taken out of the equation, home prices were basically unchanged.

“When you remove distressed properties from the equation, we’re seeing a significantly reduced pace of depreciation and greater stability in many markets,” explained CoreLogic’s chief economist Mark Fleming. “Price declines are increasingly isolated to the distressed segment of the market, mostly in the form of REO sales, as the stock of foreclosures is slowly cleared.”

According to separate data from the National Association of Realtors, distressed sales currently account for about a third of all US home sales, and the ratio is expected to rise in the near term. US banks have slowed their foreclosure pace, which has limited the influx of discounted properties hitting the market in recent months, but short sales are proceeding unchecked.

In the past, short sales involved a long, tedious process that rarely succeeded, but a new government incentive program and revisions to the process by many US banks have simplified the process. Banks are also actively pursuing short sales now, whereas they did everything they could to avoid them in previous years.

While the government’s Home Affordable Modification Program offers borrowers $3,000 in relocation assistance after a successful short sale, banks in some cases are offering up to $25,000 to encourage delinquent borrowers to pursue the short sale option. The reason for this is simple, today’s savvy borrowers are well aware that they can remain in their homes for as much as a year rent-free while the foreclosure process runs its course, and while $3,000 provides little incentive to move quickly, $25,000 is enticing, indeed.