Foreclosures Drag Down Home Sale Prices

The U.S. housing market is stuck in a bad spot. Home sales tumbled again in February, and median home prices fell to their lowest level since 2002. A glut of forecloses in the market is pushing down prices.

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STEVE INSKEEP, host:

There is little debate over the state of the housing market, which is still on a slump. Despite low mortgage rates, sales of existing homes fell almost 10 percent last month over January. Prices fell to their lowest level in almost nine years.

As NPR's Zoe Chace explains, it is hard to sell a home when not everyone agrees on the price.

ZOE CHACE: Here's what's been happening when you go to sell a house lately.

Professor SUSAN WACHTER (Real Estate and Finance, Wharton School of Business, University of Pennsylvania): Seller has a price they want. The buyer agrees to it.

CHACE: Susan Wachter is a professor at the University of Pennsylvania's Wharton School of Business.

The buyer then goes to get a mortgage from the bank. The bank sends an appraiser to check out what the house is worth in order to figure out what the mortgage should be. To figure it out, they look at similar properties in the neighborhood and what they're selling for.

Prof. WACHTER: That's what the appraiser has to use to verify that this is a market price.

CHACE: Unfortunately, when the appraiser looks around these days, he sees an awful lot of foreclosures. So he comes back with a value for this house that's much, much lower than the sale price.

Prof. WACHTER: And then the deal falls apart. There is no deal.

Mr. TIM THORLAND (CEO and Executive director, Southwest Housing Solutions): In over the last six months I can certainly point to a handful of those instances that have happened in our neighborhood.

CHACE: Tim Thorland is in charge of an affordable housing group in Southwest Detroit. He says the problem with appraisals being far below the sale price isn't the only reason home sales are down, but it's a big one.

Mr. THORLAND: There are so many homes vacant in our neighborhoods now, you know, banks and mortgage holders have to get that property off their books.

CHACE: Until we're able to stabilize that, he says, it will be hard to get a lot of deals done.

Zoe Chace, NPR News.

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