The past year has been very stressful and sometimes frustrating for many people because they are finally giving up on the market.
People want to believe that the market will eventually come back, but in the meantime they need to find something to pay the bills.
The market saw a shift in April of 2005, however we didn't really see effect until a year later when in April of 2006, usually the best months for real estate and the mortgage industry, sales were totally flat. A few properties were selling, but they moved at a much slower pace. When things are moving slower, people start to worry and they get aggressive in their pricing strategies. They lower the price of the home and pretty soon, you see prices being slashed all over the country.
This is the beginning of the slide. In the last two months, there have been two foreclosures in my neighborhood alone. That is foreclosures in a development of about 25 homes. It's not fun to see your neighbors being forced out of their homes because they cannot afford the mortgage and it's virtually impossible to try to sell it and break even.
If you have worked in the mortgage industry, you know the reasons behind the sales slump. People were buying homes like they would be able to flip them and double their money. They did 100% financing, interest only loans or even worse, a low 1yr, 2yr or 3 yr fixed that went to an adjustable after the short term of the loan. Now that interest rates are back to normal from record lows, home owners find themselves owing more on the property than it is worth.
In 1991, the same exact thing happened. I put $50k down on my first home and three years later, the $50k in equity was gone. Instead of panicking, I just kept paying my mortgage. Another year went by and I owed more on the home than it was worth, because the market continued to spiral downward. It was my home and my only place to live, so I kept paying my mortgage. What was I going to do, go rent an apartment for around the price I was paying for my mortgage? No thanks. So I waited it out and you know what happened then. Kabooooom! Another 8 years later and I tripled my money.
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