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Monday, July 9, 2012

Foreclosure Wave Starting; Downward Price Pressure Coming

As one noted real estate analyst predicted, the foreclosure wave is now starting to be seen in historical data.  This data is evidence that the real estate crash and housing price drop is nowhere near a bottom.

As I have written before, the housing market will recover only after foreclosures are allowed (or encouraged) so that a true, natural balance between supply and demand can be achieved.  I contend that a wave of foreclosures will depress real estate prices temporarily, but that there is no better or quicker option for getting rid of the invisible supply represented by homeowners who want to sell at the next, best opportunity but who haven't listed their homes for sale in the hope of a housing price rebound.  I further believe that once the supply is exhausted, even at significantly depressed price points, housing would then increase in value.  Any intervention such as limits or obstacles to foreclosure will not reduce the desire of homebuyers to sell; it will only delay those sales and delay the price decline.  However, as too many buyers predict or fear a looming price collapse (and correctly, in my estimation) and are rationally reluctant to buy an asset which they fear will decline significantly in price, buyer demand is being kept quite low.

Eric Dixon is a New York lawyer and member of the Board of Directors of the independent economic think tank the Financial Policy Council.   His views are his own. 

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