The housing market has filled the news with tales of decline. In the past twelve months it is estimated that home owners lost over 8% of their homes equity. With billions of dollars flowing out of the real estate market, what are the challenges that will need to be overcome in order for this trend to reverse course?

The major challenge that the real estate market now faces is the over abundance of foreclosed properties and the residual effect this is having on the market. The challenge with a foreclosed property is that they typically sell for 80-90% of the typical value of a home within a neighborhood. This downward pressure on home values continues to challenge home appreciation. With the projection that foreclosures have not peaked, there is obvious reason for concern. Digging deeper into this problem brings to light some additional residual effects to the foreclosure challenge. With home prices decreasing and investors (banks) losing money on their investments, they have responded by making underwriting guidelines for new loan applicants more challenging. The net effect is a reduction in the demand of  qualified new home buyers and an increase in the supply of distressed home sales. The economics 101 of this cycle does not indicate a quick fix to the housing market. The most likely fix will be a combination of assistance in reducing foreclosed properties and incentives to bring more buyers into the marketplace.. © LowRateMortgage.com 3-19-2008

 

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