CautiousInvestor

When Will the Housing Market Bottom?

I don't think so.

Homes prices have been falling and various sources suggest they have fallen approximately 12% in the past year, taking more homeowners underwater. And prices are expected to fall further taking more homeowners underwater; it's the homeowners underwater that are most clearly exposed to either voluntary or involuntary foreclosure.

The next wave of foreclosures, which will tied to conventional and jumbo loans, will add to the supply and place further downward pressures on prices. In turn, this will take more homeowners underwater and lead to increasing foreclosures. It's a viscious downward deflationary spiral.

Purchase of foreclosed properties performs a useful function by reducing the inventory of available housing but it does not suggest a bottom. The bottom will be reached when a balance between supply and demand has been reached, when prices stabilize and when more people can qualify for conforming loans which are contingent upon much tighter lending standards.