On 6 Nov 2013
Lots of bank owned homes for sale definitely do drive prices down.
Let me be more clear.
If home prices were still at the top, most homeowners in trouble would have the equity to sell instead of defaulting.
First, home prices fall. Then, when selling is no longer an option, owners in trouble either sell short or get foreclosed on.
Back in the fall of 2005, buyers began to pull back and get more cautious. Inventory began to build, but home prices continued to rise all the way until the summer of 2006. Then, Supply and Demand reached a tipping point and prices began to fall, slowly at first.
Se started seeing some short sales, but only a handful of foreclosures. It wasn't until 2007 that foreclosures started to tick up. And it wasn't until 2008 that we saw huge numbers of foreclosures flooding the market.
It is true that, on margin, a market with more foreclosures will push prices lower than a market without. Banks have no emotional attachment and will absolutely keep dropping prices until their home sell. And, more foreclosures create more blight and social problems.
Foreclosures, themselves, don't drive housing markets. Supply and demand drive housing markets and foreclosures are simply a contributing factor to Supply. If and when the market does turn, that turn won't begin with an increase in foreclosures. By the time foreclosures start to increase, we'll be 12 months or more into the decline.
The fact that foreclosures and short sales are making up a smaller percentage of sales doesn't mean that our market is cured and free of risk. It simply means that prices have risen to where those owners can sell organically. On 30 Oct 2013
Nearly 50% Of House Sales Now Cash, Institutional Investor Activity Hits High,
I have a feeling that there is a mistake in the data by RealtyTrac. For years, their data has been roughly in line with NAR, but September is dramatically different.
"All-cash purchases nationwide represented 49 percent of all residential sales in September, up from a revised 40 percent in August and up from 30 percent in September 2012."
"All-cash sales comprised 33 percent of transactions in September, up from 32 percent in August, and 28 percent in September 2012."
And look at RealtyTrac's chart... this does not pass the sniff test.