NEW YORK (Reuters) - Foreclosures drove U.S. home sales up 7 percent in 2008 after a 40 percent plunge the prior year, with eligible buyers lured by deep discounts and low loan rates, according to real estate data company Radar Logic.
So-called “motivated sales,” or foreclosed houses sold at auctions or by financial institutions, surged 177 percent last year while all other sales in the 25 metro areas tracked by Radar Logic fell by 17 percent.
“The market seems to have migrated to the point where motivated sales have become a far more constant part of the housing sales market,” Michael Feder, chief executive of Radar Logic, told Reuters.
These distressed transactions represented as much as a third of all activity last year, he said.
The housing market has swooned from 2006 record highs, glutted with unsold homes, including foreclosed properties and empty new construction.
“Buyers recognize that those are at significant discounts versus what all other people are asking for homes and are migrating to those first,” Feder said. Ultimately, that could be a positive for housing, suggesting there is a price point that has been reached that is attracting buyers, he added.
Prices sank in all 25 metro areas, pushing the Radar Logic composite index down 22 percent for the year.
The biggest sales gains were in areas with the largest annual price declines: California, Nevada, Arizona and Florida.
In California, motivated sales accounted for 47 percent of total sales in December, up from 23 percent a year earlier, based on Radar Logic data.
Falling mortgage rates bolstered sales, with Freddie Mac’s 5.1 percent average 30-year rate in December the lowest since the home funding company started keeping records in 1971.
Lower mortgage rates curb monthly payments, but do little to help potential owners come up with the increasingly large down payments that lenders require, Feder noted.
There is reason for optimism that President Barack Obama’s $275 billion home stability program will kick-start the worst housing market downturn since the Great Depression, though a dearth of specific details makes it unlikely a turnaround will be swift, Feder said.
The program aims to reduce foreclosures and press mortgage rates down.
In the latest sign of housing sickness, pending sales of existing homes slid sharply in January as the recession deterred buyers, based on a National Association of Realtors index that fell to a record low. The measure, based on contracts signed in January, tumbled 7.7 percent to 80.4, the lowest since the trade group started the series in 2001.
Feder contends that three major problems still darken the picture: the oversupply of unsold homes, restrictive access to mortgage credit and reticence of non-distressed home sellers to slash their asking prices.
“We get a turnaround in all three of those and I think we’ll have a housing recovery,” he said.
Access to mortgage money remains limited, with lenders battered by record foreclosures stemming from years of looser lending practices.
“We hear anecdotally that there are a lot of deals that are cut, but then buyers can’t get mortgages for more than 60 percent of the purchase prices, even though it’s at this ‘motivated’ price level,” Feder said.
“The mortgage money simply isn’t providing the capital necessary,” he added. “If the stimulus package begins to help make mortgage money available at numbers more like 80 to 85 percent loan to value, that’s going top help a lot.”
House prices are unlikely to rise before the supply imbalance improves.
To get that, “We’re going to need to have some balance between the absorption of motivated sales and a capitulation by non-motivated sellers to the new price levels,” Feder said.
Editing by Dan Grebler
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