Falling Foreclosures Helps Housing Prices

Foreclosures have been falling and that’s good news in the troubled housing market. Some experts believe there may be some signs that market conditions are not quite as dire as some of the other statistics may indicate.

That's because the main culprit in the drop in housing prices over the past year has been the severe price slashing of foreclosure properties. Prices for homes sold by regular sellers have held up much better.

"That suggests," said Ben Bernanke, Federal Reserve chairman, "if we can reduce the current number . . . maybe 40% of home sales, which are on a distressed basis, that would do a lot for stabilizing the market and helping give people confidence that they can buy and not be buying into a falling market."

Sales of distressed properties are down 16% this year, while sales of non-distressed properties rose 11%, according to Joseph LaVorgna, chief economist for Deutsche Bank. "With the homebuyer tax credit having expired in June 2010, we will soon be getting "clean" housing data unencumbered by artificial distortion," he said.

Year-over-year price comparisons could start to become more favorable, according to LaVorgna. Housing price changes have looked worse than they might actually have been because they were being compared to months when the home buyer tax credit was in effect, which boosted prices.