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Another Round of Bad News

April 20, 2012

No one needs to tell you that the real estate market is sucking wind. What you may not have heard yet is that despite all the “good” news you’re hearing about housing prices tracking upwards and home sales increasing, there’s a foot about to drop. Yup, foreclosures are rearing their ugly heads again.

   How can this happen? Well, remember last year’s robosigning headlines? The issue was that foreclosures were being brought to court without the proper oversight. Those issues, according to a CNN Money Story (“Flood of Foreclosures Hit the Housing Market”) have been rectified, at least to the satisfaction of the 26 states that require foreclosures to go through the courts (called judicial foreclosures). That means you’re going to start seeing more foreclosures on the national market.

   What will foreclosures on the market look like? Unfortunately, it could mean lower home prices. This is simple economics: more supply for the same amount of demand. On the other hand, if more buyers are drawn into the market with the lower prices, that could halt the pricing drop. Ultimately, housing prices are a balance between the number of new buyers and the number of home sellers.

   Our concern is with the number of available buyers. Buyers aren’t actually buyers unless they are willing and able to buy. And, while many may be willing, buyers really need two things to be able to buy: (1) a lender who will loan them the money they need and accept mortgage payments in return, and (2) a job to be able to make those mortgage payments. We’re hopeful that both markets—the mortgage lending market and the jobs market—will spring to life just as the foreclosures are released to the housing market.

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