Six Reasons Why the Housing Recession Will Return

No one wants to see a return of the meteoric drops in home prices that have plagued so many parts of the country over the last three years. Recession or Depression? The ripple effect on the whole economy is devastating. Unfortunately, there are lots of indicators that show that the real estate market is fixing for a double-dip that will keep Agents and Investors scrambling to help distressed property owners for several years to come. Why is this still happening?

1. Option ARM resets are in full motion now. Later this year or by 2011 pressure on interest rates will drive ARM interest rates higher. Many ARM homeowners opted for the lowest payment plans for years and are now even more under water than their neighbors with conventional mortgages.

2. Unemployment has failed to come down substantially. As people run out of unemployment benefits and savings they are often forced to default on their home loans. People with prime mortgages who have never had financial troubles are now being impacted with foreclosures.

3. Failure of loan modifications. Even thought the Make Home Affordable as now processed 1.4 million trial modifications, the fact is, half or more of these are likely to fail. It will take a significant commitment to principal reduction to put loan modifications on a track to make a significant dent in the foreclosure problem.

4. Commercial real estate is just beginning to experience high failure rates. It is estimated that 25% of commercial loans will come due within the next four years, and for those in areas where commercial real estate has declined in value, owners will have a tough time refinancing.

5. Even municipalities are beginning to go bankrupt. When towns go belly up they affect the value of the whole community.

6. After a brief upswing, housing values are on their way down again. There is such a large "shadow inventory" of property that is foreclosed or about to be foreclosed sitting on the market already that it will take years to work through the backlog of wholesale-priced property. This impacts the values throughout the neighborhood where these properties are located dropping the value of surrounding property. The negative impact on prices just encourages others who might be able to afford their payments to give up their house keys in a "strategic default." These strategic defaults are reported to be on the rise.