A decline in the glut of distressed homes for sale in the hardest hit areas will mean good news for the housing market, according to the National Association of Realtors (NAR).
On a recent blog post, NAR pointed out that the wave of foreclosures has driven down prices in many major U.S. cities, leading investors to snap up homes for sale in cities such as Las Vegas, Miami, Tampa, Detroit, and New York.
While investors buying up distressed inventory, often at substantial discounts tends to pull down prices, it also reduces the amount of distressed inventory for sale—which is good news for long-term home price appreciation.
“That’s reducing prices in the short run,” NAR wrote. “Yet it is also thinning the supply of homes, which must happen to clear the way for higher prices in the long run.”
NAR noted that half of the homes in Tampa listed for sale are going for less than $100,000.
In its existing-home sales report for May 2016, NAR reported that all-cash sales comprised 22 percent of all residential home sales in May, down 2 percentage points both over-the-month and over-the-year, while individual investors (who account for a large portion of the cash sales share) accounted for 13 percent of purchases in May—unchanged over-the-month and down by 1 percentage point over-the-year.
Meanwhile, the distressed sales share—percentage of foreclosures, REO properties, and short sales—declined by 4 percentage points over-the-year in May down to 6 percent, and foreclosures sold at an average discount of 12 percent in May—down from 17 percent in April. Short sales were discounted at a higher rate in May than in April (11 percent compared to 10 percent), according to NAR.
The decline in distressed inventory for sale has created more demand, which has led to more home price appreciation among non-distressed inventory.
“Overall, the homes-for-sale inventory remains relatively lean, while demand to buy homes has increased because of an improving labor market, more optimistic levels of consumer confidence, and continuing low mortgage rates,” CoreLogic Chief Economist Frank Nothaft said. “Increased demand in the face of lean for-sale inventory has prompted further value appreciation for non-distressed homes.”