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A Decline in Home Prices - Again

Posted by Steph Kaye on Tuesday, October 7th, 2014 at 11:59am.

Is This Decline Unavoidable?

In late September, the former head of Goldman Sachs’ housing research team sent a report to President Obama. In it, he predicted that home prices would go down by at least 15% in the next three years. He warned that this could put the country back into a recession. With this stern warning in mind, below are some state of housing markets around the country.

In the middle of the housing collapse the trade-up market disappeared. As home prices increased for 50 years until 2006, the first-time buyer was the basis of the housing market boom. Younger buyers purchased homes that were smaller and less expensive than most houses. The homeowners then “traded up” to more spacious, nicer homes, allowing other trade-up buyers to do the same.

'Trading up' was possible because the seller would profit on the sale of their house and could put that profit toward a more expensive home. That worked perfectly as long as prices kept increasing. When the bubble finally burst in late 2006, people got rid of their properties on the market in one city after another, and prices stopped increasing.

Listings went up and sales slowed down even in the best markets. Then prices began a large decline, which became  a serious problem for the 'trade-up' buyer. Many found they did not have any or enough profit to buy another home. Worse yet, many found themselves “underwater" with their current home, because they had put little to nothing down, the value of their homes were less than the mortgages on the properties.

Making the problem even worse was that lenders finally began making their underwriting standards a lot more strict  after the sub-prime market collapsed in spring of 2007. They began to demand down payments of 20% or more. With little or no profit made from selling,  buyers could not come up with such high down well as first-time buyers. With these significant changes, the trading-up game ended. It has not returned and won’t for a long time.

The decline in home prices ended because so many all-cash buyers came in over the last three years to replace 'trade-up' buyers. Also, servicing banks around the nation made a serious effort to significantly reduce foreclosures as well as the sale of repossessed properties.  At the top of the price collapse in early 2009, many homes were repossessed homes (REOs). Then the servicing banks decided they had to reduce the sale of foreclosed properties to stop the decrease of pricing. 

These deliquent homes the servicing banks have put some into formal default (an “NOD”), but most just sit there, as the banks take do nothing. Many have been delinquent for three to four years with owners who have made few or no payments still living in the house.

 If you are in the market for a new house and would like information on homes for sale, or are first time home buyer not working with a Realtor and would like to schedule a consultation with a qualified Oakland County and Macomb County Realtor, please complete the Lang Premier Properties contact form to have a real estate agent contact you. 

Lang Premier Properties are Birmingham Realtors specializing in Oakland County Real Estate. Stephanie is an agent with Lang Premier Properties. See what past clients have to say about Stephanie Lang.  Lang Premier Properties looks out for your best interests when you purchase a new custom luxury home. We always recommend working with an experienced luxury real estate agent when buying a new luxury estate.

1 Response to "A Decline in Home Prices - Again"

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Posted on Wednesday, November 5th, 2014 at 3:08pm.

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