Tuesday, April 26, 2011

One Step Up...

Is the housing market finally finding its footing? You might think that after yesterday's news that new-home sales rose 11 percent in March. Sales of previously owned homes were also up in March, at a rate of 3.7 percent.

That's the good news. The bad news is that, even as homes are starting to sell again, prices are still dropping. Over the previous 12 months, housing prices have fallen by around 3 percent, and a new report from Morgan Stanley forecasts that home prices will fall a total of 6 to 11 percent over the course of this year.

Why are these trends moving in opposite directions? A big part of the answer is foreclosures. Foreclosed homes tend to sell pretty quickly - but the value of the house in question generally drops like a stone. Similar transactions result from short sales, in which a seller agrees to sell his or her home for less than the value of the outstanding mortgage. Taken together, foreclosures and short sales made up a whopping 40 percent of all existing-home sales in March.

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