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Are Distressed Home Sales Misleading The Public?

July 11th, 2011 9:26 PM by Lehel S.

In an article published today by Alan J. Heavens in the Philadelphia Inquirer’s digital edition, the writer says taking out the sales of distressed properties makes for a less abrupt drop in overall home prices. (Check out the article at philly.com.)

Mark Zandi, chief economist of Moody’s Analytics, believes that distressed home sales account for around one-third of all sales, and by excluding these transactions an extremely large part of the current housing market would be left out.

“Such properties compete with other houses on the market,” said Zandi, “and as long as they account for such a large share of home sales, they will weigh in on all house prices.”

FNC’s senior research economist Yanling Mayer said in the Inquirer article abundant evidence showed that distressed properties often suffered from poor maintenance, theft, vandalism and deteriorating neighborhood conditions.

“Because of these and other hidden costs, risk, and stigma associated with buying distressed properties — not fundamental declines in home values — buyers can often expect large discounts priced into distressed sales,” Mayer said.

Mayer also believes that due in part to the large volume of distressed sales, “it is not surprising that home prices in the non-distressed market segment have remained weak.”

If we can see a drop in the sales of distressed properties, we might begin to see a rise in home prices overall, but in the end only time will tell.

Let us know what you think. Is the housing market truly being mislead by distressed home sales? Can we really exclude one-third of all housing sales?

Posted in:General
Posted by Lehel S. on July 11th, 2011 9:26 PM

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