More evidence of a well-known trend emerged on Thursday when it was reported that U.S. house prices across the country continue falling as a result of foreclosure sales. Yet traditional logic in buying and selling is also taking its toll on prices, suggests a new survey from a New York City-based real estate and analytics company.

According to Radar Logic's Residential Property Index (RPX), 24 of the 25 metropolitan areas surveyed saw year-over-year price declines as of July 2008. Only Milwaukee showed price appreciation over the year.

On a per-square foot basis, prices in Las Vegas fell the most with a 33% decline, while prices in L.A., Phoenix, Sacramento and San Francisco all dropped around 28%.

Michael Feder, CEO of Radar Logic, said two processes in the nation's housing market continue to push down prices.

"On one hand, there is the traditional market process in which sellers and buyers negotiate a price and sellers frequently prefer to wait rather than significantly reduce their asking price. On the other hand, there is the foreclosure sale process in which homeowners, banks and other financial institutions are motivated to sell quickly, so they discount their prices to effect a transaction," he said.

Feder said the motivated-sales process is driving down prices in local markets where foreclosure sales are concentrated, while the traditional process is pulling down prices, albeit less rapidly, where foreclosure sales are less frequent.



For instance, the largest price declines are in California and the southwestern states, where foreclosure-related sales have surged recently. Three of the five worst markets are in California alone.

The RPX is a relatively new market that enables real estate to be traded as a liquid asset, via property derivatives marketed by major financial institutions. In Thursday's report, trading in forwards on RPX was said to have "increased significantly" as of September. Cumulative trading in the 12 months ending September 2008 reached approximately $2 billion, the report said.

"The forwards showed their biggest one-day move following the government takeover of Fannie Mae and Freddie Mac, and received a further boost after Treasury Secretary Henry Paulson proposed his $700bln rescue plan," the report said, noting those gains fell back once the House rejected the package.

The report said the drop in forward contracts implies that the RPX market is acting like a normalized asset class.

By Patrick McGee and edited by Sarah Sussman
©CEP News Ltd. 2008