I've argued this point many times and I'm not backing down!

Real Estate pricing across the United States continue to drop in almost every market.  Yes, I believe it is still too high due to the Supply and Demand principal.  We have too much Supply and not enough Demand which forces prices lower.

My Argument: Short Sales Hold the KEY to the Real Estate Market Stabilization

Problem #1:  Banks are causing Supply to increase.

With over half the market as "distressed" the majority of the distressed homes are Short Sales.  Short Sales take 60+ days to get approved and are becoming increasingly more difficult......however, banks would rather a home owner short sale vs. going through a foreclosure or a Deed in Lieu of Foreclosure.  Therefore, home owners are doing what the banks would choose they do.

Buyers get frustrated with the process after waiting for 2 or 3 months or more, buyers remorse sets in, more homes come on the market, or (insert 100 more reasons not to buy this house) and the buyers end up canceling the Purchase agreement.  Once this happens, the home goes back on the market....to start the process over again for the next buyer.

Now that the home is back on the market, more homes have hit the market, and the inventory has increased...pushing prices down as demand hasn't increased.

Problem #2:  Banks are unwilling to lend to those who have completed a Short Sale.

You can get a loan again after a short sale, but all signs and news point to about 2 years after a Short Sale is complete contingent on your payment history with other debts, credit score, cash on hand, job status, etc.

A home owner is often short selling due to a job loss, income loss, adjustable rate mortgage putting payments above what is doable, etc.  In the past, anyone facing these issues would have just sold and moved on.  Due to the real estate bubble, many people purchased when the prices were sky high in the bubble years and now the home is worth considerably less than what is owed. Causing the requirement for a Short Sale.

These Short Selling home owners are much more often than not, financially able to purchase another home.  They may earn half of the income they were making 4 years ago, but they are still making a living, still paying all their bills, and should be allowed to purchase another home. (Some cases obviously not applicable here)

If the lenders would get back to lending money, these Short Sellers could re-enter the housing market sooner which would help to remove some of the supply off the market.

Increasing Demand and Reducing Supply = Novel idea for Market Stabilization.  Short Sales are the Key.

Posted by Brad Officer on
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