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Number of Bank Foreclosures Need to Decline for Home Market to Recover



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By : John Cutts    99 or more times read
The high number of bank foreclosures is pulling the prices of housing units down. This might mean a long road to recovery for the U.S. housing industry, given that former Federal Reserve Chairman Alan Greenspan has stated that a rise of at least 10% in home prices is needed for the industry to mount a solid recovery.

In a speech delivered at Brookings Institution, Greenspan stated that “stabilization is important not only to the housing market, but to the economic recovery as a whole”. The latest nationwide quarterly report showed that values of houses in the country declined again in the 2010 fourth quarter as the continuous rise in the number of distressed properties discouraged people from buying foreclosures and non-foreclosure homes. Analysts stated that majority of them are still waiting for further decreases in prices.

The National Association of Realtors reported that, during the last quarter of 2010, prices of single family dwellings declined in 71 of the 152 metro areas that the association tracks. This was largely due to fewer people showing any inclination to purchase distressed properties for sale and other residences. Analysts stated that home sellers are lowering the rates even further to attract reluctant homebuyers.

For the month of December 2010, bank foreclosures totaled over two million, with the number of delinquent borrowers also rising and reaching a total of 6.87 million. This portends further increases in foreclosure numbers in the coming months and most likely, another dip in residential property prices, analysts have stated.

About underwater mortgages, owners will not be able to use their home equity to get spending money unless home values start increasing this year. This creates a further economic problem since household spending accounts for around 70% of the nation's economy. However, with fewer people buying bank owned properties, home values are expected to further drop and spending will also remain low.

In fact, to increase the prices which have been hammered by huge supplies of bank foreclosures, an increase in household formation rate or a rise in owner occupancy rates should happen. Tax credits are ineffective in promoting either of these options.
John Cutts has been educated in the finer points of the foreclosure market over 5 years.

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