As quoted in the Wall Street Journal, then S&P/Case-Shiller home-price index declined 3.1% between January 2010 and January 2011. That's not so bad considering that home prices were being buoyed by a home buyer tax credit last spring. the decline in home prices has put a damper on any hopes for a robust economic recovery in the first or second quarters.
A good part of the responsibility for the lingering weakness in home prices is the fallout from the mortgage market meltdown. The market can not find clearing prices because there is a shadow inventory of homes that will be coming on the market as soon as banks foreclose on them. Foreclosures are being delayed to a) address irregular procedures that servicers had followed in executing foreclosures, and b) come to agreement on how to provide relief to borrowers whose homes are worth less than their mortgage balance. Banks have submitted a settlement offer addressing both issues.
In the meantime, cash buyers are able to buy portfolios of homes out of bank portfolios for cash. These institutional buyers use the all-cash and quick close offer to negotiate a low price on several homes, relying on diversification to protect the profit margin. These deals exist because the entire owner-occupied home market is in disarray: the price discovery mechanism is broken, the financing mechanism has been all but removed, and the biggest private participants in the market have been demonized. Furthermore, the outlook for resolving these issues is not favorable. Prepare for another year (at least) of stagnant home prices, which will continue to be a drag on macroeconomic performance.
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