In last month’s Home Value Forecast, we discussed the impact of foreclosures on New Jersey’s recovery. This month, we further explore how the amount of foreclosures can affect even the nation’s hottest housing markets.
But first, let’s understand the effect foreclosures can have on a recovering market.
Think of foreclosure sales as an anchor that can slow down the recovery of a market. Because foreclosed properties sell for less, they can impact market sales if they become a large enough part of the housing inventory.
Traditionally, foreclosures as a percentage of market sales on a healthy market will be 3-5%, anything over 10% will have a marked effect on price appreciation.
So, what does the foreclosure rate look like in the nation’s hottest housing markets?
Foreclosure Rate in Focus in Nation’s Hottest Housing Markets
Each month, Home Value Forecast releases its Housing Market Report that lists the Top Ten markets in the U.S. Our ranking system is purely objective and is based on directional trends. Each indicator is given a score based on whether the trend is positive, negative or neutral for that series. A composite score for each CBSA is calculated by summing the directional scores of each of its indicators. Finally, a “final check” is performed that brings in foreclosure and other major influences into the score.
In the event of a tie score, which happens often, we usually choose based on lowest Months of Remaining Inventory (MRI) – the thought being that less inventory means a seller’s market, and price appreciation follows.
In this month’s report, we used Foreclosures as a Percent of Sales as the tie-breaker – which put Reno at the top position and Columbus, OH at number 25.
Reno, NV vs. Columbus, OH
As the hottest housing market in the U.S., Reno has seen some fluctuations in foreclosure rate over the years — but has since returned to historic norms. Today, its foreclosure sales as a percent of market sales is at .46%.
In Columbus, which is still considered a hot housing market with low MRI (2.33) and Active Days on Market below 30, foreclosure sales as a percent of market sales is at 8.97%, much higher than Reno.
Nevada is a non-judicial foreclosure state, meaning foreclosures are quickly brought through the system and are placed back on the market versus Ohio, where the judicial foreclosure system takes longer and foreclosures linger, a topic we covered in an earlier Home Value Forecast.
Reno quickly getting foreclosures out of the market has led to a dramatic 96% price increase from 2011 lows, including a 16.13% increase in the past year.
Columbus, on the other hand, has realized a more gradual 41% price increase from its 2010 low, and an 8.57% increase over the past year.
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Home Value Forecast (HVF) is brought to you by Pro Teck Valuation Services. HVF provides insight into the current and future state of the U.S. housing market, and delivers 14 market snapshot graphs from the top 30 CBSAs.
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