Falling prices mean rising affordability -- for now

Home prices fell in a record four out of five U.S. cities in the third quarter as low-cost foreclosures flooded the market and the U.S. housing market’s decline spread throughout the country. Among 152 metropolitan areas included in the trade group’s survey, 120 posted declines in median home sales prices compared with a year ago, the National Assn. of Realtors said Tuesday. Nationally, sales fell by almost 8% in the third quarter compared with the same period a year ago. Sales of foreclosures and other distressed properties made up around 40% of transactions in the quarter, bringing down the median price by 9% from a year ago to $200,500. Sales fell in all but four states in the Realtors’ group’s report. The exceptions were Nevada, California, Arizona and Virginia, where buyers have been able to snap up foreclosed homes at a bargain. ‘A very large proportion of distressed home sales are taking place at discounted prices compared to more normal conditions a year ago,’ Charles McMillan, the Realtors group’s president, said in a statement. That’s especially true in places like Sacramento and Riverside, Calif., where prices were down 37% and 39%, respectively, from last year. The two California cities had the largest annual price declines in the report.

Housing affordability continued to increase during the third quarter throughout most of the state as a result of sharp price reductions fueled by waves of foreclosures.... The quarterly National Assn. of Home Builders/Wells Fargo Housing Opportunity Index found that homes were more affordable in 27 of the state’s 28 metro areas included in the report, but because of falling home prices across the nation, California still has more metro areas scoring the lowest in affordability than any other state. In addition, today’s relatively high affordability levels are likely to be a short-lived phenomenon after the market correction is completed as underlying demographic trends point to rising prices in the future once the large supply of foreclosed homes is sold.