The foreclosure crisis that plagued the housing market for years continues to stall recovery, as found in the Tuesday release of the S&P/Case-Shiller index. The report found home prices dropped in 20 U.S. cities in December to levels not seen since mid-2002.
Foreclosures Force 4 Percent Drop in Property Values
The highly-anticipated S&P/Case-Shiller index revealed news that many experts predicted — a significant drop in December home prices. The 4 percent decrease was actually a bigger drop than the 3.7 percent decline economists originally predicted.
The main culprit of this sharp drop, which followed an equally-significant decrease of 3.9 percent in November, is the foreclosure crisis. Distressed properties continue to push through the foreclosure pipeline and return to the market, which lowers the prices of homes in their neighborhoods.
With so many foreclosed properties flooding the market, many buyers who are aware that foreclosures lower property values have been waiting for cheaper bargains. They also hope to avoid being stuck with a property that falls underwater as soon as it’s purchased.
This buyer mindset impedes construction and makes it difficult to get new properties on the market, which is important for helping the home prices rebound.
Home Prices Expected to Drop through 2013
Home sales are said to be stabilizing a bit, but because so many foreclosed homes are saturating the market experts say home prices will likely continue to plummet the rest of this year as well as most of 2013.
“Things will continue to worsen on the supply front, as there will be an increase in foreclosures,” reported Yelena Shulyatyeva, economist at BNP Paribas in New York. “The downward trend in prices is making a lot of buyers postpone purchases.”
The government is hoping to stop the downward trend by moving foreclosed homes off the market. Fannie Mae’s foreclosure rental program is asking investors to purchase one or more of 2,500 homes that can be rented out to families at affordable prices.
Officials announced on Monday that the pilot program had sold its first home to an investor and hopes to get remaining homes sold to give the market a much-needed boost.