It is common knowledge that when demand is high, sellers have the luxury of determining the price of the goods and services they provide. However, when there is over abundance of supply then buyers become the ones who will choose what they want and how much they are going to buy for it.
This sums up exactly what is going on in the housing market. In the days of the housing boom, many people were investing in home ownership; this caused a sharp rise in demand pulling prices alongside.
When the housing market fell leaving most homeowners in a state where they could not afford their mortgages it resulted in a high rate of mortgage delinquency. Mortgage banks reacted to this by foreclosing on properties belonging to delinquent homeowners.
As foreclosures increased, the housing surplus increased as well. In no time, the high supply of foreclosed homes had competitively eliminated any thoughts we may have had of obtaining a newly constructed home.
But that was not going to be the end of the problem. After stifling the growth of the construction sector, foreclosed homes turned their attention to prices of homes. The economic turmoil has left home prices in a very unstable state.
Most buyers ended up realizing that with just a little bit of patience, they could beat down the cost of most homes on the market. Sellers were desperate and willing to take whatever was offered to them. This situation affected prices of homes negatively contributing to the high number of homeowners who are suffering from negative equity.
To stop this trend of events, analysts were of the view that foreclosures must be brought to a halt and if that is to be made possible, then homeowners need to be assisted to pay their mortgages.
By reducing foreclosures, the number of distress homes on the market will significantly reduce thereby reducing the housing surplus for the housing market to enjoy good prices once again.
Although government and private sector organizations have not been able to fully solve the foreclosure crisis, the National Association of Realtors have reported that for the year 2011, sellers of homes were able to reject prices they felt were not good.
This unanimous action by sellers across board explains why for this year, most sellers across the country were able to acquire 95% of their listing price from buyers.
This means that buyers were able to beat down prices by only 5% of the amount that was asked for by the seller. The NAR’s report was based on a survey it conducted on over 5000 buyers and sellers in the housing market.
The report further states that, sellers who were distressed and needed the money badly often sold their homes for up to 10% less than what was originally listed. The NAR believes that when sellers are in a state of distress, their actions are more likely to cause a downfall of prices than when they are selling their properties at normal conditions.