Why the Real Estate Market May Turn Around in 2009
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Without a doubt, 2007 was one of the worst real estate years many had seen in quite some time. In fact, many people have begun to compare the current real estate market crash to the crash of the 1980s. While it does not appear that prices will improve this year, there are indications that the market may begin to experience some recovery next year. This could mean an improvement in prices which have appeared to be in free fall for the last twelve months.
One of the reasons it is anticipated that prices will begin to improve in 2009 is the fact that many experts have anticipated the market to bottom out in 2008. At first glance, this can certainly seem to be frightening news; however, it is important to keep in mind that the market really cannot begin to recover until it bottoms out.
In understanding the recovery of the market it is important to look at the factors that resulted in the current real estate market slump. There are actually several factors that led to the current slump. One of the most important is the fact that prices in many areas throughout the country doubled between 2000 and 2005. In some cases, those prices even tripled in area like Florida for example. As a result, there were a record number of people who were unable to afford homes, especially first-time home buyers. As the number of buyers able to purchase real estate began to dwindle, this resulted in price and sales declines throughout the country.
As headlines have proclaimed recently, subprime loans have also contributed to the recent debacle. During the last few years, a large percentage of the number of loans that were made was issued to buyers with credit scores that were below average. Additionally, a large number of loans were made to buyers with minimal down payments. Since real estate prices stopped rising approximately two years ago, a large number of buyers who had snapped up properties in red hot markets suddenly discovered that the balance of their mortgage exceeded their properties values.
The rate of defaults began to escalate at this point. Before long, foreclosures also began to increase as a direct result. As more and more foreclosures hit the market, the inventory in those markets began to spiral out of control. As more homes hit the market, prices began to drop even further. To make matters even worse, economic growth began to stall and massive layoffs in many areas further fueled defaults and foreclosures.
While it has taken some time, assistance is now being provided to homeowners; which is anticipated will help to stave off the increasing rate of foreclosures. Overall, this is anticipated to help stabilize the rapidly rising inventory of homes for sale in many parts of the nation.
It is important to keep in mind that while headlines appear to be constantly blasting news about the softening real estate market, there are markets in the country where prices have continued to rise. On average, real estate prices nationwide are approximately 5% less than they were last year; however, many of the metro areas in the nation are still experiencing price increases. This is largely due to local economic growth, first-time home buyers who can afford to purchase properties and retiring homeowners who are selling their homes and either moving into a retirement community or purchasing smaller properties. Examples of such markets include Mobile, AL; Salt Lake City, UT; Waveland, MS; Charlotte, NC; Beaumont, TX and Knoxville, TN.
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