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Current Glut Of Homes Will Drive Housing Prices Lower

Published 11/27/07 (Modified 3/8/11)
By MoneyBlueBook

Unless you are the National Association of Realtors (with their weird predictions), you are living in the realm of reality and are aware of what is going on in the real estate market. Unless you are NAR, you're probably well aware that most reputable research groups and real estate analysts continue to report a dismal housing market.

The real estate market was so hot for many years and now it's finally tanked and appears to be poised for a lengthy bear run. I was in the market for a new house but have decided to pull out until markets have bottomed out. I know it's difficult if not impossible to accurately predict if and when the bottom has arrived, but based on current conditions, I don't think we are close to the abyss yet.

The problem with housing is that it's no longer about location, location anymore. Now it's all about supply, supply. Mortgage rates could decrease with further Federal Reserve rate cuts, but so long as sellers refuse to budge from their highly priced home listings, the supply will continue to grow, creating a seller's bubble of its own.

We Have Only Begun To See the Downturn

Latest research reports show that housing prices have steadily fallen since the summer, although there are pockets of relative tame changes in areas like the Northeast part of the United States. As grim as it may seem, I think the worst is yet to come and I doubt we will see any appreciable recovery for many years, at least until 2010.

The biggest problem right now is the wide discrepancy in pricing reality between buyers and sellers, and the sense of denial gripping many home sellers. Currently there is a very large glut and oversupply of homes in the real estate market that is contributing to the stagnant market. During the summer, reports indicated that the glut had grown to its largest size ever in the last 16 years with more than a 9.6 month supply of homes for sale with figures steadily increasing. Foreclosures are up but sellers refuse to budge from their high asking prices. I think the homes that have managed to sell are the limited few that are contributing to the skewed appearance of stable home prices.

Currently, home builders are reporting terrible demand for new homes and projects. Even with the decline in housing prices, there is still a significant drag in the movement of houses. When sellers eventually realize that they won't be able to get close to their asking price, they will be forced to lower their prices significantly or face the prospect of not being able to sell their home at all. When that happens, we are likely to see a drastic downward plunge in prices when this oversupply bubble pops.

I know there are legions of people like me who are patiently waiting in the wings for prices to depreciate significantly before entering the market for a home. Prices in my area will need to plummet at least 10-25% before I would even consider buying. I am actually hoping for the mortgage crisis to severely worsen so I can go bargain hunting in 2-3 years in the aftermath of the housing collapse. In the meantime, I am happily renting.

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3 Responses to “Current Glut Of Homes Will Drive Housing Prices Lower” 

  1. Mrs. Micah says:

    I'd been worried that we'd never get a house with all the prices going up. But now that they're coming down it seems more like a possibility (someday).

  2. KMC says:

    Something I can't figure out. I assume you're correct in writing that builders are reporting terrible demand (frankly, I haven't been reading up on them). So why do they keep starting new developments and building houses? I don't know the home building business, so I just don't know why this continues to happen. Any idea?

  3. Raymond says:

    Well many builders have already invested heavily in building projects to the point of no return but seeing the slide in the housing market, rather than writing off everything as a loss, many chose to convert projects in rentals (particularly for condos).

    There are limited pockets of growth out there and housing construction will never come to a complete halt...it will just slow to a trickle. I live in an area where many condo projects were underway when the housing bubble popped. The have ALL since been converted into rental units and are presently half-way built.

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