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Recent data suggests that prices for homes in metropolitan areas have dropped to the lowest rates since 2002.  Tons of unsold homes, numerous foreclosures, and the financial inability of prospective buyers are three of the main contributing factors driving prices down

Since the housing bubble burst in 2006, home prices have fallen further than they did during The Great Depression.  The housing market did not regain its losses until nearly 20 years post The Great Depression’s end.

Momentarily, home prices rose in the summer of 2010 due to the temporary federal home-buying tax credit.  Prices have plummeted ever since.  According to David Blitzer, chairman of the index Committee at Standard & Poor’s, the month of May saw a “double dip in home prices across much of the nation.”

Economists predict an extra five percent drop in prices nationally by the end of 2011.  Factoring in inflation adjustments, the current home-price index has not been this low in 12 years.

Home prices may continue to fall unless a combination of the following four occur:

• Banks ease lending rules
• Employers begin to hire in greater force
• Potential home buyers gain confidence that a home purchase is a beneficial investment
• The abundant number of foreclosures for sale are reduced

Foreclosures usually sell for at least a 20 percent discount.  These low prices consequently pull the price of surrounding homes down as well.  This process delays the overall rebound of home prices.  Due to the low cost, foreclosures are very popular in the current economic climate and with first-time buyers.

One of the factors leading to first-time buyers having trouble getting financed for a home is a misunderstanding of mortgage terminology.  While prequalification letters are useful in determining estimates of how much you can borrow, preapproval letters are more beneficial because the lender has completed a credit check on top of a detailed look into your financial background.

In addition to this being a tough time to buy a home, a Thomas Reuters/University of Michigan index of consumer sentiment states “roughly 92 percent of homeowners say it’s a bad time to sell their home.”

Low home prices also affect other sectors of the economy.    Consumer spending goes down with the drop in home prices as well as local and state property tax collections.

Nevertheless, some companies like Quicken Loans have adapted to the current state of the economy.  Quicken Loans offers buyers the YOURgage, a fixed rate loan option that is customizable to meet your financial goals (from 8 to 30 years).

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