Post date: Jan 03, 2011 6:14:53 PM

I don’t think anyone one of us would have considered real estate a depreciating asset however, these past three years have given us something to think about. The big implosion beginning late 2007 and continuing through 2008 resulted in a rapid loss of value in almost every market nationwide with some markets being hit harder than others. During 2009 and the beginning of 2010 however, we began to see a large number of these markets begin to stabilize as well as many investors lift their very stringent declining market policies. Things however, are about to change again.

As the market has become saturated with foreclosure sales nationwide, I am again beginning to see that little box on the appraisal under one-unit housing trends checked as declining. Additionally, more and more appraisals are coming in short of the anticipated value making it harder and harder to complete even limited cash out refinances without mortgage insurance and in some instances, complete them at all. This week alone we have seen several cases fall out due to collateral and when I say the value was short, I mean it was way short. Bottom line is the number of bank owned properties hitting the market is now beginning to have a huge impact on how consumers are shopping for homes.

Prior to 2007, property values were appreciating at a record pace often putting potential homebuyers in a position where they were consistently out bided by other consumers who were trying to purchase reasonably priced housing, hence the invent of the escalation clause in many contracts written during that time. After the bubble burst however, and more and more properties hit the auction block, consumers found they had far greater purchasing power, often picking up properties for .50 cents on the dollar which afforded them the ability to purchase in neighborhoods they may not have otherwise been able to afford. This created a trend toward the purchase of these types of properties versus properties listed at fair market value. This type of activity over the most recent 12 months had again created a downward spiral where fair market values are concerned as sellers consistently reduce the price of fair market sales in order to be competitive with the bank owned properties.

As we move into 2011 and see the market flooded further by foreclosure as well as short sales, I can only anticipate a further decline in values. The FHA mortgage insurance program may help as we can still complete rate/term refinance transactions at a 97.75% LTV but investors as well as HUD may again become extremely particular where appraisal requirements are concerned. We can also hope the lifting on the moratorium where investor 203k’s are concerned will create some sort of competitiveness in the market where the bank owned properties are concerned which also may help to stabilize values or with any luck, drive them up bit which in my opinion is a much nicer thought than comparing one’s home value to that of the depreciating asset in their driveway.