The housing market is getting worse as a result of declining house prices, increased foreclosures, higher unemployment, and troubled credit markets. Unfortunately, the situation is likely to get worse as the economy falls deeper into a recession. It appears that the market is in a tailspin with no relief in sight.
Recent reports from industry observers confirm that home prices are continuing to dwindle amidst a worsening economy. Reuters quoted Tom Zimmerman, an analyst with UBS Securities, as saying, “The housing market has been in a recession for the past year, and once the overall economy slips into a recession, which it probably will, the housing market will probably be in a depression’ The housing market, in terms of housing finance, is really in a disaster right now and I see no change in that very quickly.”
The decline of home prices has resulted in millions of Americans owing more on their homes than the homes are worth. This has resulted in many people deciding to walk away from their homes and allowing their lenders to take possession of the homes. The housing market is being flooded with a large supply of these homes which the lenders are trying to unload..
Unemployment is another growing problem for the housing markets. Unemployment rose for the sixth straight month in June. As a result, the total number of jobs lost in 2008 increased to 438,000. As more jobs are lost, people cannot afford to pay their mortgages, and foreclosures increase. This has further contributed to the excess supply of homes on the market.
Foreclosures have risen 53% since last June and are up in 39 states. However, even though foreclosures have increased drastically in recent months, it is expected to be many months before the number of foreclosures peaks. James Saccacio, CEO of RealtyTrac, believes “we have not reached the top of this foreclosure cycle.” These developments promise to further flood the housing market with more homes for sale.
All of these events are occurring at the same time that our credit markets are tight. Many major financial institutions have experienced huge losses in recent months and have little money available to lend. Thus, many people that might be interested in buying homes are unable to borrow sufficient money to do so.