Photo Credit: Wingwire.com
Hindsight is 20/20 as we all know, but it is still important to identify what the problems were the in real estate market when it came crashing down. In 2006 the housing bubble “popped” and the market went on a downward spiral with several variables contributing to a pro-longed down market. Let’s do a quick recap as to what was wrong with the market.
In 2008, people lost their jobs which affected their ability to keep up with their mortgage payments. Banks wanted to cut their losses, so they pushed foreclosures through at very low cost. This undercut the real estate market, not helping an already bad situation of supply overcompensation for demand, causing the high market price to fall. All houses are bound to lose value when anywhere from one-fourth to one-half of the house sales in your neighborhood are distressed.
The undercut market also caused many people to lose significant equity in their homes, which contributed to many a homeowner being underwater on their mortgage. People who had owned their homes for a short time lost all of their equity, and people who had owned their homes for a longer period of time lost many months worth of payments. This set the average homeowner back. Most homeowners used their homes and investments. When they lost the value of the investments, their buffer/reserve was gone. This left them unable to make home repairs, remodels, and cash-out refinancing for emergencies such as medical bills or tuition or broken cars. The left the only way to get out of underwater homes to a foreclosure or a short sale, further devaluing a neighborhood. This all had a harsh residual effect on the economy. The places where people would have spent there leisure money suffered, as well as the places that profit from home repairs and home remodels. But this seemingly endless downward spiral has started to turn around…
The market has begun an upturn. The following graph from Calculatedriskblog.com shows the market beginning to recover from its plummet from 2006-2012.
Home values are beginning to sell for a little more every month This has put many homeowners above water on their mortgage, allowing them to sell without devaluing the homes in their neighborhood and undercutting the market further. To further benefit, homeowners now have equity to fall back on in case they need cash for home repairs and emergency bills. Now that the inventory of houses has fallen, the supply and the demand are becoming more stable and predictable, and the price of homes is reaching a happy medium, allowing homeowners to rely on a mortgage as an investment/asset.
With the recovery of the housing market comes a peripheral effect on jobs, especially in the real estate industry. With more revenue and more demand, businesses will start to need and be able to afford more employees. At Advantage Title Company, we have been fortunate enough to go through a series of hires including administrative, operational, and marketing personnel. Our growing volume (because of increases housing prices and sales) created the need for increased capacity and we were happy to add new employees to the Advantage Title family.
As we move forward in this new market, the players in our economy must be careful to plan for a rainy day and make financial decisions a little more cautiously. The need to avoid a real estate frenzy is clear. But Americans have started down the road to recovery, the the dream and reliability of home ownership is on the mend, and the future is bright. Home owners are starting to be able to once again afford houses and expect a positive result from the purchase of a home.
Social Media Project Manager
Advantage Title Company 