The economic disaster was caused by toxic mortgage investments constructed out of sub-prime loans. Sub-prime mortgages are considered to be the riskiest types of loans, as borrowers in this category do not have the best credit history. These types of toxic loans were bundled into little investment packages and when homeowners started to default on the balloon payments associated with some sub-prime loans, the housing bubble burst and so did the value of the little bundles.
That corruption had a trickledown effect around the nation. Home values declined because the market was flooded with an abundance of properties. That decline negatively impacted the value of millions of homes, and put many homeowners' under water in their mortgages. Additionally, the surplus caused a decrease in demand in new home construction and that reduced the number of employment opportunities in the construction sector. Plus the financial industry that originally manipulated the system experienced retractions both in worth and employment opportunities. All this combined to make a perfect storm supporting the nation's greatest economic retraction since the Great Depression.
Why New Home Sales have Decreased
To counterbalance the troubles caused by the housing industry, one of the first acts conducted by the Obama team involved a multi-fold economic stimulus package. One of program features included a "first time home buyer's credit" in the thousands of dollars range. The program was eventually tweaked to extend into 2010 and offered up to $8,000 to qualified home shoppers.
The deadline for the credits officially expired on April 30, 2010. Upon the conclusion of the program, new home sales dropped.
What the Immediate Future Holds for the Housing Market
According to Mark Zandi, the chief economist at Moody's Analytics Inc. (West Chester, Pennsylvania), foreclosures could reach the 1.9 million mark upon the conclusion of 2010. The previous record of 2 million properties seized was set in 2009 and that timing is too close for comfort.
The Realtor's association has reported that the market is still saturated with homes for sale, totaling a whopping 3.89 million properties on the market. The association estimates that selling all the available properties would take over 8 months. The behemoth of mortgage lenders, Fannie Mae, predicted that the real estate market could expect an additional sales drop of 12 percent thanks to a looming decrease in both new and existing homes. The factors will combine to help drag home prices down again, even as they are still fighting to rise.
