How Much Do Foreclosures Affect Prices?

If all these homes weren’t in foreclosure, where would property values be now?

A new research paper from the Federal Housing Finance Agency (FHFA) attempts to quantify the effect of distressed home sales on average home prices. It concludes that foreclosures have worsened price declines, but not dramatically.

FHFA calculated that sales of distressed properties magnified the price decline in California and other areas with high numbers of foreclosures by 5.4 percent since 2006. Taking that number into account, it figures that, on average, sale prices of homes in non-distressed areas have declined 36 percent since the market’s peak.

Source: The Washington Post, Elizabeth Razzi (05/28/2009)