Falling Home Supplies Are Bad for Buyers

AUG Home Supply
AUG Home Supply

The August Existing Home Sales report was released Wednesday, showing a decline in the number of homes sold nationwide, and a reduction in the median sales price. 

Not surprisingly, the media singled these two statistics out, playing them as a big negative

They’re not.

The decline in sales wasn’t good, but it wasn’t terrible, either — sales were actually up in half of the regions around the country. 

And, citing “median sales price” is somewhat pointless because median sales price only measures the price point at which half the homes sold for more, and half sold for less.

No, it’s the third statistic in the report that deserves as much — if not more — attention that the previous two.  According to yesterday’s press release, the national home supply is decreasing. 

This is terrific news for home sellers.

In its report, the National Association of REALTORS said that the nation’s existing supply of homes for sale fell by 7 percent in August. 

At the current pace of sales, that represents a 10.4-month supply, down from 10.9 months in July. With a reduced supply of homes for sale, all things equal, home prices would increase. 

This is Supply and Demand in its most basic form.   

Economists and experts have long noted that reducing the housing supply is one of the key elements to a sustainable housing recovery and we’ve seen several indications that this is happening, including builders not building as much.

Longer-term, this is good news for home sellers because a reduction in housing supply tends to lead to higher prices. 

(Images courtesy: The Wall Street Journal Online)

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Foreclosures vs. Short Sales

It seems that there is a misunderstanding with Short Sales that pertains to the name itself. They are not short sales in regards to the time it takes to close on a purchase.

Actually, they are quite long when compared to a traditional listing or foreclosure home for sale.

A short sale is when a person selling their home is selling it for less (aka short) then what they owe to the bank. If the home does not sell it eventually will go into foreclosure and be bought/sold at a trustee sale (in Arizona they are trustee sales).

Sometimes the same bank that lost the property buys the property at the trustee sale and then it becomes a bank owned aka REO (Real Estate Owned) listing. The bank will then send it to auction or send it to a local REO listing agent.

A short sale can take up to 6 months to close or more in some cases while a foreclosure will take approximately 45 days from start to finish.

What Exactly is an REO?

We’re glad you asked!

REO stands for ‘Real Estate Owned’. Basically it is a foreclosed property NOT to be confused with Short Sale.

The process of purchasing an REO is similar to a traditional transaction in many regards, however there are many points of interest to pay special attention to which will be highlighted in posts to follow…