Another Drop In Value Headed For Property?

Just like a ride at an amusement park that slows down right before plunging to the steepest decline in the ride, our real estate market may be headed for a similar sudden decline following a small recovery of its 2008 declines.

With a drop of 10-15% anticipated, the coming price drop has been pushed by a combination of federal factors that are combining for the perfect storm in real estate.

Here it is three years after the peak and it’s still all about housing, said David Rosenberg, an economist at Gluskin Sheff & Associates in Toronto. The outlook for the market is extremely clouded.

The first shoe to fall was last week’s Federal Housing Authority announcement that it would tighten its loan standards in light of defaults that had pushed the agency’s reserves well below its mandated level.

Due to the inundation of foreclosures, the FHA reduced the number of qualified buys by forcing those with the weakest credit to pay higher payments for mortgage insurance, increasing the required down payment and limiting seller contributed closing costs.

Conventional loan programs are having a hard time placing loans with qualified borrowers, who are turning to FHA financing for easier loans

Due to these trends many borrowers are considering the FHA as their only source available for financing their home purchasers, which means the government will be backing even more loans than the already burdened Fannie Mae and Freddie Mac do. A lot of people who can’t get loans from the FHA will have nowhere else to turn.

Until the economic turmoil gets settled down and people begin making more money, programs like the FHA loan programs will be vital to the stability of the housing market, especially in regard to first time home buyers and people with lower credit.

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