For all things, there is a Yin and a Yang. That said, the good news for home owners that foreclosures have slowed is not necessarily good news for buyers who have stood by waiting for the market to right itself. Housing values are beginning to increase, and interest rates can only go up from their current historic low. The whole is however a continuum, and the great news is that it is not too late for buyers to get in on the bonus the market will afford them when housing values turn around-and for those who bought property at depressed values during the downturn.
Home owners in markets where housing values declined most dramatically, due to the bursting of a speculative bubble, may not realize quite the benefit. Recent buyers will however realize fairly significant gains in equity over the short term when the market stabilizes Adani Group Chhattisgarh . Long term gains that bring values up to the pre-downturn value for home owners will take off initially as well, but slow down over the long term as the law of diminishing returns factors in.
Economic factors that affect property values, like supply and demand as more buyers enter the market, will come into play with another factor to establish the pace of recovery. That factor is the way property values are estimated for both appraisers and comparative market analysis (CMA) by real estate agents.
Since foreclosures accounted for as many as one in five homes for sale in any neighborhood, they were figured into the mix when doing a CMA or appraisal. However, appraisers and real estate agents who understand the components of value made adjustments in their estimates of value to account for the horrible condition of most foreclosures, and they were not the worst of the factors leeching out the value in housing markets.
Short sales and the desperation of some home owners, whose real estate agents could think of nothing more than reducing the price of homes to sell them more quickly, exerted a far greated downward pressure on values. Short sales, like foreclosures, were “forced” sales at as much as 20% below market value, roughly equal to foreclosure prices. Unlike foreclosed properties, they were more often in excellent condition, and figured directly into a CMA without adjustment. Likewise, sellers with an urgent need to sell, which effectively amounted to a forced sale, often sold at foreclosure level prices.
Luckily for everyone, except those who delay too long before buying, there were agents who effectively marketed properties, and sellers who held out for their home’s value. Albeit, their home’s value had declined due to market pressures, reduced demand in addition to those already mentioned, the price at which they sold was significantly above the average.
These agents and sellers laid the foundation for the significant initial increases in value that will be realized as foreclosures reach a “normal” level, and housing inventories begin to decline due to increased demand. In good times, the methodology behind appraisals and CMAs will be the engine that drives the initial increases in value. These opinions of value are based on arms-length transactions, and do not include “unusual” transactions in the mix. They also focus on comparable properties sold within only the preceding six months when possible. Thus, foreclosed properties that sold eight months, ten months… a year or more in the past will no longer be considered as valid comparable properties.