Economics 401 – Effects of a housing ‘slump’?

When James L. Doti, president of Chapman University, updated his 2006 economic forecast for the nation, he did have one question that could throw a monkey wrench into the equation, and he called it, 'THE BIG IF.' That question is: “What IF housing prices plummet?”

For subscribers to RealtyTrac the answer to that question is worth considering. If housing prices plummeted like they did back in the early 1990s, the loan-to-value ratio on many mortgages might force homeowners into foreclosure, providing  new opportunities for real estate investors, speculators, real estate agents and anyone looking to buy a home from the foreclosure pipeline.

Results of the most recent member survey conducted by the National Association of Home Builders shows the level of builder confidence in the nation’s housing market at its lowest point since 1995. Declining numbers are being felt across the board in residential building permits, housing starts (projected to be down 10 percent for 2006 and another 6 percent in 2007) and completions, resulting in a total $64 billion drop in residential construction.

This dampening in the new housing sector, combined with a lower volume of home resales, raises concerns about the overall health of the national real estate market. If these concerns fuel a downward spiral, home prices could drop significantly, resulting in a loss of homeowner equity (which in itself could have serious economic repurcussions) and an increase in the inventory of foreclosure properties.

Experts like Doti see this scenario as unlikely. And unless something fairly dramatic happens to cause the housing market to take a dump like it did in the early 1990s, the chances are that folks looking to the foreclosure pipeline for significant deals are going to have to broaden their search for properties.

With coverage from over 2,500 counties across the country, RealtyTrac is a great source of information to expand your search.