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April 26, 2011 at 01:31 PM
WASHINGTON (AP) — A wave of foreclosures is forcing down home prices in most major U.S. cities. But economists and real estate agents point to what they call a key first step for any housing recovery: a decline in the glut of homes for sale in markets hit hardest by foreclosures.
Low prices are leading investors to snap up foreclosed homes in Detroit, Las Vegas, Miami, Phoenix and Tampa. That's reducing prices in the short run. Yet it is also thinning the supply of homes, which must happen to clear the way for higher prices in the long run.
For some, the deals are too good to pass up on. A studio apartment on the Las Vegas strip that cost $500,000 at the height of the housing boom is now selling for roughly one-third the price. Half of the homes listed in the Tampa Bay area are selling for less than $100,000, not far from some of Florida's nicest Gulf coast beaches.
Such sales have helped shrink the combined supply of unsold homes in those five cities by 13% over the past year, according to local listing data analyzed by The Associated Press. Home prices in each of those markets are at or below 2002 levels, according to the latest reading of the Standard & Poor's/Case Shiller 20-city home price index.
"If we were to see several consecutive months of supply getting smaller, it would point to an improving housing market," said Celia Chen, senior director at Moody's Analytics. "Even if it is investors buying them, they are renting them out in hopes that prices in the next several years will rise."
Economists caution that a second wave of foreclosures, specifically those that have been delayed by banks and backlogged courts, could throw the housing market back into turmoil. And few see home prices rebounding this year.
Home prices fell from January to February in 19 of the 20 metro markets tracked by the Case-Shiller index. At least 10 major metro areas are at their lowest point since the housing bubble burst. The index, which was released Tuesday, is slightly above the level hit in April 2009, the lowest point since the downturn began.
Getting rid of foreclosures and other risky properties is necessary for the market to turn around. When foreclosures and distressed properties get sold, home prices fall. As the supply of cheap homes shrink, prices stabilize. Homeowners who held off moving because they didn't want to sell their home during the downturn become more confident that they can get a better price. That leads to more buying and selling, pushing prices up even further.
Most of the sales activity now is at the investor level. Private equity firms. Foreign and out-of-state buyers searching for vacation homes. Individual investors looking to flip or rent out properties for a profit.
They are all scooping up cheap homes with cash, said Andrew Duncan, a Realtor who runs a Keller Williams franchise in Tampa. In March, 35% of previously occupied homes sold were purchased entirely in cash, according to the National Association of Realtors.
