Why are housing prices falling when the number of houses on the market continues to decline? Usually, when supply shrinks, then prices rise, right? So, why isn’t that happening now?
The reason is that housing market never completely cleared, which is to say that the Fed’s interventions and the manipulation of inventory by the banks prevented the market from finding a bottom. So, now– a full 6 years after the peak in home sales in 2006–the real estate depression continues while prices drift lower still. And–here’s the bad part–no one knows how much farther prices will drop, because the existing inventory of homes on the market (according to the Wall Street Journal) is presently 1.89 million while the shadow inventory (according to CoreLogic)… is “1.6 million units” which represents another 5 months supply, “the same level as reported in July 2011.”
Here’s more from Corelogic:
“Currently, the flow of new seriously delinquent loans into the shadow inventory has been offset by the roughly equal flow of distressed (short and real estate owned) sales.
CoreLogic estimates the current stock of properties in the shadow inventory, also known as pending supply, by calculating the number of distressed properties not currently listed on multiple listing services (MLSs) that are seriously delinquent (90 days or more), in foreclosure and real estate owned (REO) by lenders.” (Calculated Risk)
So, there’s a mountain of backlog to work-off before the market touches bottom and prices stabilize. But even that doesn’t accurately describe the troubles facing the market. The biggest obstacle to any real recovery is the millions of distressed homes that are set to come onto the market in the next few years. Those numbers will swell by many orders of magnitude when the banks and the 50 Attornies General agree to a settlement on the Robosigning fiasco some time in early 2012. When an agreement is finally reached, a flood of foreclosures will pour onto the market pushing down prices, wiping out precious homeowner equity, further eroding bank balance sheets, and forcing more underwater mortgage holders to “walk away”. Here’s how CNBC’s Diane Olick sums it up:
full article at source: http://www.marketoracle.co.uk/Article32842.html
Here in Ireland things are no better in our small economy The government have a better hand on the news flow and in fact control the entire housing market with their NAMA agency .They also manage the property prices with their payment to private property owners rental supplements for people depending on private landlords to supply housing to social welfare recipients. These rental supplements are quite generous and I am surprised that they haven’t started to cut this obvious expense to the countries taxpayers. But then again quite a lot of the TD,s are in fact landlords and would not be so quick in voting in any cuts in this direction .Never the less cuts will be coming soon and when they do this will only have a downward pressure on property prices. Rents are far too high all over the country and hard pressed tenants are subsidizing wealthy private landlords .If you are thinking of buying I would hold off this is not the time to be buying we have a long way to go before we see a bottom in Irish property prices !