Worst is Over as Housing Deflation Peaks

Despite an on-coming wave of foreclosures, the worst is behind the majority of U.S. housing markets, according to a new assessment by Housing Predictor. Real estate deflation has been the worst in three states, topping 75% in the hardest hit markets of the country. But it has begun to slow as a result of a series of government programs enacted by the Obama administration.

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Most areas in especially hard hit markets in California, Nevada and Florida have suffered average deflation of more than 50% from the markets peak. However, pent up buyer demand has produced housing inflation as a result of rock-bottom prices as forecast by Housing Predictor, providing lower priced foreclosure properties for buyers. But studies indicate more than 25% of the foreclosure inventory has been purchased by cash paying investors, slashing the supply of properties for owner occupants.

However, despite a broad series of programs implemented by the government, weakening consumer confidence in the market has slowed home sales in many areas. The Treasury Department and the Federal Reserve have purchased $1.25-trillion in mortgage-backed securities to help keep mortgage rates low. More than 4-million homeowners have been able to refinance mortgages under the program, according to the Treasury Department.

More than 1-million homeowners have gotten a second chance to stay in their homes through trial mortgage modifications, which have cut payments an average of $500 a month. Some 170,000 mortgages have become permanent modifications and hundreds of thousands more are expected to become permanent in coming months, according to the Treasury Department.

The first time home buyers tax credit has also provided hundreds of thousands of additional home buyers the incentive to purchase homes. Housing Finance agencies have implemented $23.5 billion in state assisted programs to help neighborhoods start to stabilize that have been especially hard hit by the foreclosure crisis.

The Recovery Act, also part of the housing stimulus program, has supplied $2-billion in aid to help stabilize neighborhoods. However, the epidemic of foreclosures triggered by loose lending guidelines that nearly crippled the U.S. economy is forecast to rise in coming months as bankers move to foreclose on homeowners in default.

The first signs of stabilization in California, Nevada and Florida with a higher volume of sales, however, are projected to weaken as more foreclosures flood markets. Bank of America and servicers for defunct Washington Mutual Savings are more aggressively moving to foreclose on property, which will supply a larger inventory of foreclosures for the summer buying season. Increasing buyer demand for lower priced homes should act to aid markets in their long term recovery.