As U.S. home prices edge nearer to a dreaded double dip, foreclosures are making up a staggering 26% of all home sales.
The Standard & Poor’s/Case-Shiller index, America’s most popular index of home prices, reported an average price drop of 2.4% in 20 major U.S. cities in the month of December from a year prior.
Prices fell 1% from November to December which is the fifth straight month the index has fallen.
Its this five month consecutive decline that is seen as a potential double dip (see image).
Yale University economics professor Robert Shiller, co-creator of the index, thinks things could get worse.
“My intuition rates the probability of another 15%, 20%, even 25% real home price decline as substantial,” said Shiller. “That is not a forecast, but it is a substantial risk.”
On the positive side, the National Association of Realtors reported that sales of existing homes have risen now for three straight months. Homes are cheap and deals are getting done.
Over a quarter of homes sold are foreclosures and they come at bargain basement prices. Homes sold while in the the foreclosure process (short sales) are discounted by about 15%. Homes already foreclosed on and owned by banks, called REOs (real estate owned) are sold at an average discount of 36%.
Maybe, it’ll be America’s appetite for a good deal that saves the housing market.