These foreclosure-related sales, which Radar Logic calls motivated sales, are characterized by significant price discounts compared to other sales in the same MSA. These discounts range from 20% to over 50%, depending on the MSA. As motivated sales increased as a share of total sales, the shift in the mix of sales contributed to a decline in home prices. Between December 2007 and December 2008, the 25-MSA composite price decreased by 22%. If the mix of motivated sales and other sales had remained unchanged since December 2007, the composite would have declined by 16%.
"As foreclosures increase and sales outside of foreclosure decline, motivated sales are starting to represent a significant percentage of the transactions we observe in several of the MSAs we track, particularly in the West," said Michael Feder, Radar Logic's president and CEO. "As motivated sales increase, the prices they receive will likely become more the norm than the exception."
Key Observations:
- The growth in transactions from December 2007 to December 2008 marks a significant improvement over the previous year, when transactions dropped in each of the 25 MSAs and declined 40% overall versus 2006.
- Prices in all 25 MSAs declined between December 2007 and December 2008, largely due to the increase in motivated sales as a share of total sales.
- The normal seasonal decline in prices and transactions from November to December abated compared to 2007 in most MSAs.
- The Manhattan condominium market experienced a year-over-year price increase, largely due to closings on new construction, which likely were priced well before the closing date. The weakness of the market was reflected in a substantial decline in transactions relative to December 2007.
