Is the Foreclosure Crisis Over Yet? More Likely – Total Bankruptcy
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Is the Foreclosure Crisis Over Yet?


Since interest rates and home prices across the country have dropped, some people feel that it's currently a buyers' market. For those who can get mortgage loans in the tightened credit market, it seems as though now may be the time to take the plunge and buy a home.

However, experts warn that the housing market may not have hit rock bottom just yet. Some have a grim outlook and say that home prices could go dramatically lower and another wave of foreclosure is likely.

Still, for some prospective home buyers, the current pricing on foreclosed homes is attractive enough to take the risk. Some home shoppers are seeing competitive bids for the lowest priced foreclosed properties and real estate agents are beginning to earn a living again.

The Los Angeles Times recently spoke with economists who were not optimistic about the housing market.

Leslie Appleton-Young, chief economist of the California Association of Realtors, says that any recovery in the housing market will be "long and bumpy." Appleton-Young says that there may be brief periods of false starts in which home prices flatten or even rise, only to fall again.

Many economists are looking back to the first time the housing market bubble burst in the early 1990s for indicators of what may be to come. Back then, real estate lost 20 percent of its value in the first three years and continued to suffer a slow decline for four more years.

Some more optimistic economists look at the recent uptick in home sales as a sign that home prices have almost hit rock bottom. However, they have been predicting the same thing for months - that the market has "almost" reached the bottom. No one can be sure whether or not the recent surge in home sales on foreclosed properties is a one-time thing or if things truly will turn around soon.

While home prices may seem very low, they are still historically high in proportion to incomes. During the mortgage free-for-all in recent years, exotic mortgages made it possible for people to buy homes that they could not - and still cannot - afford. These types of mortgage loans quite obviously contributed to the foreclosure crisis and are no longer available.

Low interest rate mortgage loans are available, but credit markets are tight. In today's market, even people with good credit may have trouble getting a mortgage loan because of new lending standards and stricter requirements.

Simple supply and demand is one factor of lowered home prices. With millions of foreclosed properties on the market there has been an increased downward pressure on home prices.

Home sales in California are up, but even so, as of the end of July there were so many houses on the market in the state that it would take nearly seven months to sell them all in a healthy market. It's an improvement from a year ago when there were enough houses on the market for 10 months, but still far above the four to five month supply of houses that was the norm before the market imploded.

With this many "extra" houses for sale, prices will still need to come down even more in order for them to sell, according to Thomas Davidoff, a UC Berkeley economist who studies housing markets. Davidoff notes that declining home prices will put even more people "upside down" in their mortgage loans, which means owing more than their homes are worth. This is a good indication that the foreclosure crisis is likely to continue.

While some economists may be optimistic that the end of the housing nightmare is coming soon, the facts unfortunately do not support that theory.

The American economy is weak, with many people considering bankruptcy as a means of keeping their homes and getting back on track financially. Mass layoffs are now commonplace each week across the country and consumer confidence is slipping.

The future cannot be predicted, but facts are facts. It is going to take some time for the housing market to recover from this colossal mortgage mess.

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