Price reductions for homes currently listed on the U.S. market have increased -- for the third consecutive month -- making up 26% of the inventory and representing more than $29 billion in lowered prices, according to research conducted by Trulia.com, a real estate Web site. The data do not include foreclosed properties.
What does this mean? Sellers across the country, most notably in five Midwestern and Southwestern cities, took a big gulp of a drink called "Get Real" and are pricing their homes to go.
Topping the list of the 50 largest U.S. cities with home-price reductions are Minneapolis, Minn.; Milwaukee, Wis.; Phoenix, Ariz.; Mesa, Ariz. and Albuquerque, N.M. Whether the homes were overpriced because they wished it were still 2005, or they're competing with foreclosed homes for sale, sellers in these metropolitan areas are serious about making a deal. That's good for buyers and the economy.
|Rank||City||State||Percent of listings with price reductions||average reduction (%)||Total amount of reductions|
"This is a condition for the housing market to come back," says G.U. Krueger, an economist and president of HousingEcon.com in Los Angeles. "When everything is approaching half price, you have more demand. The only way the housing market can turn around is to get prices down to the point where they reach what people can afford, in line with their income levels."
Krueger adds that with interest rates as low as they can go and government incentive programs over, even steeper price reductions may be in the offing, as the only incentive left. There already is proof, he says, that reduced prices stimulate home sales. "We saw, in the foreclosure areas of California -- before the 2009-2010 tax-incentive programs came into effect -- a sharp increase in home sales when prices came down."
Even sellers benefit, beyond unloading an unaffordable home. "Once they leave these homes," Krueger says, "they can rent, and save money" for other purchases down the road.
Buyers looking for the best bargains might head to Minneapolis, Minn., where, 43% of homes on the market -- worth $34.8 million in discounts -- have price reductions. If you prefer the Southwest, try Phoenix, Ariz., where 39% of listings offer reduced prices, worth about $116 million in savings, according to Trulia.
Although home-price reductions increased in about half of the country's major cities, the other half -- 24 of the largest 50 -- stayed the course or experienced a drop from a month ago.
"We're seeing gradual improvement in many U.S. cities," says Trulia co-founder and CEO Pete Flint, "several for consecutive months."
In California, for example, seven of eight of the Golden State's largest cities reported price reductions at or below the national average of 26%, according to the survey. In Los Angeles, price reductions currently make up 22% of homes listed for sale, compared with 26% a year ago.
Geoff McIntosh, a Main Street Realtors broker in Long Beach, Calif., says that some sellers in the Southern California city-- where 28% of current listings have price reductions -- still don't get it.
"It's not unusual for me to meet sellers who understand that the house they bought in 2003 for $1.1 million is worth only $700,000 today, but they say they want to 'test the market' and list the house at $1.1 million. They have to come to grips with the fact that they won't get $300,000 more than the house down the street."
Those who do get it, however, are selling. "The number of transactions here are increasing," says McIntosh. "They're doing it," needless to say, "for less money."