Housing prices fall more than expected in the first quarter--thanks to foreclosures

05/25/2011 3:02 pm EST


Jim Jubak

Founder and Editor, JubakPicks.com

The hits keep coming. No wonder the Federal Reserve isn’t in any rush to raise U.S. interest rates.

U.S. home prices dropped 5.5% in the first quarter of 2011 from the first quarter of 2010, according to the Federal Housing Finance Agency. That’s the biggest drop in almost two years. Prices dropped 2.5% from the fourth quarter of 2010. Economists had projected a 1.2% drop, according to Bloomberg.

That’s 15 straight quarterly declines in home prices in the agency’s survey or loans baked by Fannie Mae or Freddie Mac.

The problem—no surprise here—is foreclosures and short sales, which have accounted for 38% of sales this year. In these kinds of sales banks sell properties that they’ve seized from borrowers at prices that are likely to be below market averages in an effort to recoup part of what they’ve lent. The average discount on a foreclosed property to a non-distressed home is about 28%, according to Zillow.

According to Lender Processing Services, about 6.4 million mortgages were delinquent or in foreclosure in April. That’s more than a year’s supply of houses at the 5.1 million annual pace of existing home sales in April.

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