RealEstateEconomyWatch.com

Inventories remained at historic lows in September, down 17.77 percent compared to a year ago and the median list price was marginally higher, but a growing number of older industrialized areas are showing signs of weakness and the gains observed earlier in the 2012 home buying season in many markets appear to be moderating.

The number of markets experiencing year-over-year list price declines in Realtor.com’s Real Estate Trend Data has increased in recent months, underscoring the continued fragility of many housing markets. List prices increased in 77 markets, held steady in 29 markets, and declined in 40 markets. Last month, only 31 markets were down on a year-over-year basis. “A growing number of older industrialized areas in the mid-west and the northeast are showing signs of weakness as a weak economy continues to take its toll,” said Realtor.com’s September commentary.

Some 17 of the declining markets are more than 4 percent below last year price levels and only two, Pekin-Peoria, IL and Charleston, WV trail September 2011 price levels by more than 10 percent. A modest improvement across the board could move prices in a quarter of the nation’s markets from the red to the black.

However, in several significant ways the fragile markets differ from the Western and Florida markets that were hit the most by foreclosures but are leading the price recovery. On the whole, the weak markets, especially the weakest, did not experience price increases during the 2002-2006 boom. Second, with a few exceptions like Naples, Myrtle Beach and Fort Pierce, did not see large foreclosure default rates during the height of the foreclosure era and did not suffer peak-to-trough declines exceeding 50 percent. But many today are seeing pockets of problems.

Some of the biggest declines were in urban markets like Fort Wayne, IN (-6.33 percent), Trenton, NJ (-5.73%), Chicago, IL (-5.02 percent), Philadelphia, PA (-4.81 percent), Newark, NJ (-5.76 percent), and Wilmington-Newark, DE (-4.71 percent). In addition to their size, and Midwest-Northeast locations, these markets share large inventories of foreclosures that have a depressing effect on home values. They are in judicial states where foreclosure inventories remain sizable due to the slower processing of foreclosures. In an August latest ranking of foreclosure inventories by state, New Jersey ranks second highest in the nation, Illinois is fourth, Indiana is 13th, Pennsylvania is 14th and Delaware, 16th. The presence of Florida markets among price losing markets might reflect that fact that Florida leads the nation in foreclosure inventory with 11 percent of its mortgaged homes in foreclosure.

Finally, many of the markets simply cannot muster the demand to bring down inventory levels due to lingering unemployment. August unemployment rates in Chicago (8.8%), Philadelphia (8.8 percent), Newark (9.4 percent) and Trenton (8.8 percent). All were higher than the national unemployment rate of 8.1 percent in August.

“These patterns suggest that the underlying nature of the country’s housing problems has changed. What began as a collapse of a housing bubble fueled by poor underwriting and toxic mortgage products has evolved into a housing recession that primarily reflects continued weaknesses in local economies,” said Realtor.com.

Nationally, however, the median price rose from $190,000 in August to $191,500 in September, and was slightly above (.78 percent) the median list price observed one year ago. While list prices remain well below their peak of $249,900 in early 2007 when Realtor.com began tracking these data the fact that list prices have held their own through most of the 2012 home buying season is seen as a positive sign that the overall market has begun to stabilize.

The national for-sale inventory in September continued to decline down 2.19 percent from August and down 17.77 percent on an annual basis. The large year-over-year decline in inventory is a positive sign that the overall market is in a stronger position compared to a year ago. While the total inventory has risen somewhat since the beginning of 2012, it has averaged about 1.8 to 1.9 million units in every month, the lowest levels since January 2007.