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Home Value Forecast 11.20.2013
Columbus, OH, Real Estate Recovery Hampered by Foreclosure Sales and Discounts

Columbus, Ohio, has a lot going for it. It is not only the seat of the Ohio state government and home to Ohio State University, the third largest university in the nation, but Columbus also recorded just a 6 percent unemployment rate in August, far below the national rate of 7.3 percent.

Like most of the rest of the nation’s housing markets, Columbus is enjoying some of the fruits of the recovery. The median home price is up 5.1 percent over a year ago and sales are up 16.5 percent as the year winds down.

Columbus Ohio

However, something is seriously wrong with Columbus’ housing market. Though the basic metrics continue to improve, for the past three years an insidious disease has been infecting home pricing, causing dizzying swings in home prices with no apparent relationship to either demand or to inventories.

Behind the veil of Columbus’ recovery is an oversized inventory of distressed sales whose roots lie in Ohio’s legacy as a judicial state. As recently as a year ago, Ohio was taking an average of 564 days to process a foreclosure. While foreclosure volumes were declining in other markets, some 50.5 percent of all the homes sold in September were either foreclosures, REOs or short sales.

While the volumes of distressed sales in Columbus today resemble the peak of the foreclosure crisis, so too do foreclosure discounts—the difference between prices for foreclosures and regular or full-price homes. In the third quarter of this year, REO discounts of sold prices per living space increased to 63.3 percent, an all-time high.

REO vs Regular Sold Price - Columbus OH

Compare this scenario to the San Diego, CA, market we highlighted in our last update: The Timeline of a Turnaround.

San Diego REO vs Regular Sold Price

California is a non-judicial state, and the REO discount has shrunk from a high of 30 percent to the current 14 percent and shrinking, a much different scenario than Columbus.

So, why are discounts so high in Columbus? Because there are large numbers of foreclosures now being sold at pre-foreclosures or auctions to hedge funds at super discounted prices. And essentially these discounts, coupled with inventory size, are crippling price growth and creating instability.

As long as so many properties continue to be sold low and behind the curtain, the Columbus market is going to suffer with price instability, hampering any real housing recovery.