Okay…so what’s wrong with this picture? In communities all across America the value of homes has dropped faster than the New Year’s Eve ball in Times Square. Lower prices should mean bargin prices. Bargin prices should mean people jumping back into the housing market.
People jumping back into the housing market should help inflate the value of homes…..

But things aren’t working out that way and it is all because of the credit markets.

Most “experts”–and I do use that word with great caution when talking about the real estate mess–seem to agree that lenders are sitting on the fence because they still are not sure just when this mortgage crisis will hit rock bottom.

The banks and other financial institutions worry, and not without good cause, that if they do start freeing up credit and people buy up those cheaper homes, the homes will still continue to loose value leaving the lenders holding the bag.

What will turn this around?

For one thing, if the lending institutions get convinced that the U.S. government is as serious when it comes to helping out home owners as it was in helping out Bear Stearns, they may feel a bit more relaxed about freeing up some credit.

But it is hard to feel that way when Congress is still trying to come up with legislation that the president will not veto–though it appears more and more likely each day that Bush will not stand in the way of anything Congress will offer for fear of further damaging Republican party candidates in the fall.

Lending institutions must also take stock of their own practices and either self police or face regulatory action under a new administration, especially if it is a Democratic one. That means
putting a stop once and for all to those misleading radio ads that still pop up telling people who have credit scores that suck that they can still get a nice, big, fat mortgage with hardly any financial pain on their part. Yeah, right.

But buyers can also contribute to the solution to this problem by realizing that homes are places to live and raise a family and not either an ATM card with a front lawn or an investment to dump back on the market in a short amount of time hoping to strike it rich.

When all of the above things are in place, it is my best guess that lending institutions will free up credit, which will grease the way for more realistic mortgages, which will allow people to finally start taking advantage of all those bargin homes flooding the market.

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Tags: Credit, credit market, default, home value, house values, loans, Mortgages, Real Estate Market