3 Ways Foreclosures Will Stunt Growth

The foreclosure scandal rolls on, and now it’s become only too apparent that the robo-signing issue is going to hurt the U.S. housing market. But how, specifically?

Here, we look at three ways the foreclosure crisis could put the real estate market back in the red.

Too many foreclosed homes

The biggest problem right now is that foreclosures are running rampant, so quickly that the documentation can’t keep up, and efforts to sell foreclosed homes have suffered because of it. According to RealtyTrac, lenders foreclosed on 102,134 U.S. homes in September – that’s the first time foreclosures ever passed the monthly 100,000 mark. Plus, foreclosure sales accounted for 31% of all U.S. residential real estate sales in September, so when almost one-third of all homes are taken off the market until banks review their foreclosure practices, that severely impacts U.S. home sales.

The coming housing glut

Those foreclosed homes taken off the market won’t be on the shelf forever. When banks and lenders finally get their act together and put those foreclosed properties back on the market, we’ll see a glut of homes for sale, which will surely drive home pries down again. It’s economics 101: The more properties on the market (increased supply), the lower the prices (reduced demand).

Unless the housing market sees a big boost in Americans looking for new homes - and we haven’t seen much evidence of that in the last two years – look for a housing glut when all of those foreclosed homes are back on the open market.

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