Over the past two years, lender-mediated foreclosure and short sale properties have seen massive declines in their sales prices as banks slash prices to spur demand and move these declining assets (or are they liabilities?) from their balance sheets.
Over the same time period, traditional home sellers haven't seen their property values decline at the same rate, despite a growing number of foreclosures.
The November median sales price for lender-mediated foreclosures and short sales was $130,881. This is a 20.2 percent decline from November 2007.
The November median sales price for traditional properties was $225,420. This is only a 2.0 percent decline from November 2007.
The difference between these two numbers is $94,539.
Assuming a 30-Year Fixed Rate Mortgage with a 5 percent down-payment at the prevailing 4.75% interest rate, the monthly payments on these two hypothetical properties look like this:
Traditional Property: $1,429 per month, $17,153 per year.
Lender-Mediated Property: $786 per month, $9,432 per year.
That $95,000 difference in sales price amounts to a pretty hefty difference in the cost burdens felt by the home buyer over the course of the 30-year loan. While we know that lender-mediated properties are more likely to need considerable repairs, have a far more complicated purchase process that sometimes leads to canceled sales, and can in general be a more tenuous purchase than traditional sales, $95,000 is still a big gap, all things considered.
So here's the $95,000 question: is this gap sustainable?
Are consumers willing to pay that much more for quality, "turnkey" properties that are ready to move in? Or will traditional sellers need to drop their prices further to compete with these bargain-priced foreclosures and short sales?
We earnestly want to hear from you on this. What do you think and why? Leave your thoughts in the comments section below.