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Oswald Acted Alone and We Did Land on the Moon

We believe that things are usually as they seem. We are not the type of organization that believes in conspiracies. However, there is something interesting in some of the housing price studies we are seeing in our research. It seems that some of the groups making the predictions are the same ones that have the greatest power to affect the prices they are projecting.

Most housing analysts warn that the heaviest downward pressure on prices will be created by distressed properties and the speed at which they will be released to the market. Research shows that ‘short sales’ sell at a 20% discount and foreclosures sell at a whopping 40% discount. Obviously, when and how much discounted real estate enters the market will have a major impact on prices of surrounding properties.

Back to our research

We are now seeing that a certain segment of those projecting future pricing have two things in common:

  1. They believe prices will fall rather dramatically in the first half of 2011
  2. They have control of the flow of discounted properties to the market

Predictions for the first half of 2011 by firms that fall in the above category:

  • Bank of America projects that prices will fall 3.7%
  • Fannie Mae predicts that median prices will drop $12,500
  • Wells Fargo reported that they feel home prices will drop 8%

Not a coincidence

We are beginning to realize this is not a coincidence. The organizations which should best know when the surge of foreclosures will be released are saying house prices will be hit the hardest in the first half of the year. We are not asserting that there is anything devious in what we have found. We are just reporting that those who have control over the flow of distressed properties must think/know that inventory is about to be released. Why else would so many of them be predicting a sharp decline in home values in the next 120 days?

Bottom Line

If you currently have your house on the market and are hoping that you will see a better price after the snow melts or the temperature warms up (aka Spring), BE CAREFUL! Those in the know are warning you the best price might be attained TODAY!

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13 replies
  1. Todd Hawkins
    Todd Hawkins says:

    Here’s something else to bear in mind. Due to the suspension two years ago of mark-to-market (fair value) accounting rules by the Financial Accounting Standards Board (FASB), banks are valuing their REO “assets” at whatever they deem realistic (i.e. not what the market thinks is “fair value”). When those eventually sell, those houses must be booked at the sold price, and that ends the mirage between Lender and The Street and the banks’ reserve requirements and all manner of other FASB rules must then be followed. So they have to be careful just how fast they release their “shadow inventory” lest they trigger all sorts of Basel regulations when that REO sells for 20 cents on the dollar when they valued at 60.

  2. Brad Yzermans
    Brad Yzermans says:

    I agree…..if the big boys predict it, they have a plan. In addition to them releasing more inventory, I also think they are estimating that the rise in mortgage rates will create fewer buyers and put additional downward pressure on home home values. I agree. If agree, if you need to sell….go for it.

  3. Sue Nix
    Sue Nix says:

    Thank you so much – I think by the time the higher powers open up their mouths about almost anything it has already been decided. We didn’t have a chance to agree or disagree it’s done.

    Enjoy reading all of your e-mails and blogs. I am still trying to get on the Blog bandwagon. Unsure if I will be able to keep it updated enough to keep people coming back for information.

  4. Tom Barbey
    Tom Barbey says:

    We have been aware of this “shadow inventory” issue for over a year, but are of the opinion here at idaho real estate that it is a good time to buy as well as sell. Searching for the bottom can be costly, and when you consider that any percent drop is based on the already reduced price, it’s not as big a deal as one might think…at least for owner occupied homes. It’s the “0% of 0” rule. If buyers can find the “right” home, at a good interest rate, go for it…especially here in Boise, Idaho.

  5. Michael
    Michael says:

    I think that having 2 Realtors advertise on a blog about how real estate prices are manipulated shows how (desperate) bad the market is. I think if you absolutly must sell it is best to bite the bullet and price it to sell. But…..if you are a buyer, especially a cash buyer, take your time as the prices will not be going up for a long time and most likely will continue the downward slide for……a long time.


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