Home prices continue to erode

The real estate market continues to struggle as home foreclosures and bank owned properties have brought home values down to ten year lows. The January home price report released from Case Schiller today indicated that  home prices in the nations twenty largest markets have dropped by almost twenty percent is January of 2009. The continued erosion of home value is not a good sign for the struggling housing market. The main culprit with home price deterioration is banks and mortgage lenders who are overwhelmed with foreclosed properties. The bank owned homes are now selling for twenty to fifty percent of their appraised values from as recent as 2006. Declining home values will continue to haunt the U.S. economy as the housing market is a key component in the overall GDP and more importantly the confidence of the average consumer.

The recent rebound with U.S. stocks could be the first indication that the U.S. economy may be starting to turn the corner after finding a bottom in early March. Their are a number of incentives to help bring home buyers into the market (government rebates, low prices) none of which may be as important as the historically low mortgage rates available. The low rates have spurred a mini refinance boom for the mortgage industry as home owners have moved quickly to lock in rates in the low five percent range.  The low rates could help to bring new home buyers off of the fence who have tried to time the market to find a potential bottom. As lenders ramp up efforts to slow down home foreclosures, the inventory of houses on the market should begin to rebalance and a price bottom could easily be reached. This shift is all but certain to happen in 2009 and could very well be taking place today. Investors have been the largest group to jump into the bank owned property market and are purchasing large inventories of homes to remodel and flip or hold for investment as they rent the properties out and wait for values to rebouond.