The biggest obstacle facing the real estate market is excess inventory
April 11, 2008
The housing crisis is a daily headline on almost every website, newspaper and blog. The fact that American home owners have lost billions of dollars worth of equity is very concerning and one of the largest items on politicians agendas heading into the elections. Our country is growing at a rate of about two million people per year. This is a key statistic that is often overlooked but will be a major factor in eventually helping to fix the housing market.
The largest challenge facing the real estate market today is excess inventory. The fallout from the sub prime mortgage crisis has been an over abundance of foreclosed homes. This has had a significant secondary impact on the market that is contributing to the ongoing problem. As home values have declined, lenders have tightened their guidelines making it more difficult to not only refinance but to qualify for loans to purchase homes. The net result is that we have a marketplace where inventory is continuing to grow and the demand for the inventory is restricted. Like every major economy this causes prices to decrease.
The solution that should be the major focus of congress is to encourage new forms of lending to stimulate the real estate market. Fixing the demand side of the equation will go a long way towards improving home values.