So When Will the Foreclosure Snowball Stop Rolling?

Real Estate Agent with DWELL Real Estate

In January 2009 I wrote about the foreclosure snowball. We all know the story about the heated real estate market, the popping bubble and the resulting foreclosure and economic crisis. Foreclosures have dragged prices lower which in turn created more foreclosures which again lowered prices which again caused more foreclosures and so on.

Foreclosures will continue to put a drag on prices until their numbers decrease. Distressed sales make up around 45% of the Sarasota Florida real estate market (the percentage of distressed sales in the luxury markets like Siesta Key, Longboat Key, Casey Key, Bird Key and Lido Key are much lower).

So when does the foreclosure snowball stop rolling?

1) The economy and confidence

The economy needs to improve. People are hoarding any money they have and are reluctant to spend it. When the economy improves people will become more optimistic and more likely to spend money. This will bring more home buyers to market. More home buyers equals more sales and lower inventory. A renewed level of confidence will also keep some people in their homes who might otherwise quit paying thus decreasing the number of foreclosures.

2) Jobs

No one is going to buy a house that does not have a job. People worried about losing their jobs are most likely not going to buy a home either. When the economy improves and companies start hiring again then the home buyer pool will increase. A lower unemployment will most likely decrease the number of foreclosures. Home owners that are upside down in their house might be more likely to hang in there and keep paying the mortgage if there is renewed confidence in the real estate market and economy.

3) Home prices

When home prices fall to the point where an investor can buy a home and break even or have a positive cash flow then that is the therotical floor to the real estate market. I believe this theory only applies to homes on the lower and middle end of the price spectrum and not luxury properties. A $5,000,000 beach front estate is not going to fall to the point where you can rent it out and break even. The dynamics of that market are different.

Here in Sarasota, Florida you can find homes where the revenue covers the expenses. We have not seen that in a looooong time. Those properties are being purchased by end users and investors quickly. That seems to be the floor in prices.

None of these things will happen over night. We have been in this for a long time now. I saw home prices starting to slip in 2006. That was nearly 5 years ago. It seems like we are on the tail end of this mess with perhaps a couple of more years to go. I can't see prices going that much lower but you never know.

It seems to me that home prices are low enough and are very affordable. What we need now is a larger buyer pool. This will only happen when the economy improves, jobs are more plentiful, lending guidelines loosen just a bit and the overall consumer confidence is higher.


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Dan Edward Phillips
Dan Edward Phillips, Humboldt and Del Norte Counties, CA - Eureka, CA
Humboldt and Del Norte Counties, CA

Good Morning Marc, very good post, you make sereral excellent points.

Oct 02, 2010 01:53 AM #1
Barbara Hensley
RE/MAX Properties - Rockwall, TX
Homes for Sale in Rockwall County, Texas

Great post.  I agree!

Another factor that will result in the foreclosure ball continuing the roll is that there is such a large inventory of properties that will eventually be foreclosed.  These bad loans and the unqualified people placed in homes will not change.  There are people living in homes who have not made a payment in a year plus and the home is still not foreclosed.  the backlog is too vast to be handled quickly.  These people should not have purchased the home.  

I am not speaking of the people that have had hard luck in job loss, but the ones that should have not been in a home of the price they were allowed to purchase.  

Thanks for your good post.



Oct 02, 2010 02:04 AM #2
April Hayden-Munson
Brookfield, WI
Brookfield Wisconsin Real Estate

Marc, I think jobs are the biggest key.  The buyers in my market are concerned with a possible job loss, until they feel comfortable about the job market they are staying put.

Oct 02, 2010 02:07 AM #3
Brin Realty Associates Team At Bean Group
Bean Group | Brin Realty Associates - Amherst, NH
Amherst NH homes and Southern NH real estate

Very well NH our unemployment rate is 5.7% yet the market is very slow with few buyers.

I am hoping the Fall election will spur small business confidence and they might start hiring and big business might start spending when they feel the US has some new direction...we'll see.

Oct 02, 2010 02:11 AM #4
Stella Barbour
NoVa Brokers LLC - Vienna, VA
Principal Broker, Serving Virginia and Maryland

So many potential buyers are on the fence because they don't know if and when they will lose their jobs.

Oct 02, 2010 02:37 AM #5
Gabe Sanders
Real Estate of Florida specializing in Martin County Residential Homes, Condos and Land Sales - Stuart, FL
Stuart Florida Real Estate

And now with the foreclosure process under scrutiny and the major players postponing foreclosures, what next?

Oct 03, 2010 12:10 AM #6
Tony and Suzanne Marriott, Associate Brokers
Haven Express @ Keller Williams Arizona Realty - Scottsdale, AZ
Serving Scottsdale, Phoenix and Maricopa County AZ

The decision to pursue short sales rather than REOs was validated yet again in the past week, with the one two punch of the moratorium on Trustee Sales (no new inventory) coupled with the freeze on closing REO transactions that were already in contract with a Buyer (no closing, no revenue).  It can't be a pretty picture for large REO teams with a large fixed overhead - and who knows when things will start moving again?

Oct 17, 2010 07:32 AM #7
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Marc Rasmussen

Sarasota Real Estate
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