U.S. home prices last quarter posted their sharpest drop since 2008, falling 3% even from the prior quarter. And the fall in home prices is accelerating. Why?
The U.S. jobs market is terrible, with roughly 20 million people unemployed or underemployed, which is a huge group not likely to buy homes. At the same time, many others fear losing their jobs and are also unlikely to buy. While still others are buried in credit card and other debt.
Meanwhile, foreclosures are growing rapidly. Fannie Mae and Freddie Mac, government monopolies that buy most mortgages originated in the U.S. are hemorrhaging money. Fannie has lost money 14 of the last 15 quarters and needs another government bailout of $6.5 billion to cover the declining value of its massive foreclosure portfolio. As March ended, Fannie and Freddie owned 218,000 homes, a 1/3 jump from a year earlier.
Sellers understandably want a premium price for their homes but in this real estate market, buyers are balking demanding big discounts. And the overhang of mounting foreclosures gives them leverage to either buy a foreclosure or get a big homeowner discount.
As a 35 year real estate investor, my intent is not to scare you but to inform you so you can make smart decisions. If you are a prospective seller, consult your local real estate professional but price to sell, don't wait around for a higher price. In the near term, if you are getting any offers at all, the next offer you receive, is likely to be lower than the last one.
Dick
For more information, please see "Home Market Takes a Tumble," Wall Street Journal, 5/9/11
http://online.wsj.com/article/SB10001424052748704810504576309532810406782.html
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