In this presentation Market Watch explains in detail the Distress Housing Market Model used to predict the 20% price gain in the Valley’s housing markets in 2012. They show why standard economic models could not predict the supply of homes that were driving prices at the time and that a more exact model was needed for these conditions. The interesting aspect of this model was how markets tended to self-correct or heal themselves as distress selling slowly decreased. As this happens median prices move higher rather dramatically and more than one would expect. It was the opposite mechanism where prices plunged as foreclosures and short sales flooded the markets.
The presentation also shows why the high priced market – homes over $1,000,000 – avoided the foreclosure crisis. While areas with lower priced homes had up to 50% of sales either foreclosures or short sales, the higher end had only about 10%. However, the high priced market suffered its own problems as many wealth buyers cautiously put off their buying decisions after the financial crisis to let things settle. This decrease in buyers led to an inventory buildup normal. The net result was that many high priced homes stayed listed much longer causing a number of sellers to drop their price to encourage buyers. By 2012 however, this was showing signs of changing. It seems that higher priced homes are starting to participate in price gains along with lower priced homes.
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