A question I get asked quite often is when will the real estate market stop going down? Or have we already hit bottom? This is a tough question to answer but I believe we have not hit rock bottom yet.
Here is why- There are thousands of people in sub prime mortgages who have adjustable rate loans that have yet to go up. Also there are thousands of people in negative amortization or pay options arms that have yet to reset. When those loans reset or adjust the payments on those loans will rise dramatically. Unless the current lender is willing to stop the increase in payment there will be many more foreclosures because people cannot afford for their payments to go up in this economy.
Mortgage lenders and investors of mortgage backed securities are now getting very strict. Many of the loan programs that were available for those of us with good credit are now gone. Yes you can still get a very good fixed rate mortgage rate with as little as 3% down and in some cases zero down. However qualifying is still much tougher. This takes away many buyers and they either stay renters or stay in their current homes. Lack of buyers means homes stay on the market longer and thus they have to sell for a lower price. Simple supply and demand.
We are starting to see areas of the country that did not see a fast steep decline, start to decline more and more as the days go by. When this happens it trickles down to outlying areas. Why does this happen? Well a couple of reasons, one is short sales for sure. These are people that are usually having trouble making their payments so they are selling the home for less than the balance on the mortgage note.
Another reason is of course is foreclosures and bank Roe's where the bank sells the property at the auction or lists it themselves if it cannot be sold at the auction for a decent price. Then you can add in those people who just flat out panic and want to get out before it gets worse. All of these reasons are contributing to the decline and in my opinion future decline of the U.S. housing market.
With that being said I don't think we are far from the bottom. Do I know when? Of course not otherwise I would be sitting next to Dave Ramsey or someone on Fox news! I am hoping that it starts to turn around in the spring of 2009 but that may be a bit soon. We will have to wait and see.