Foreclosure: Speculation

Are Market Home Prices Dropping Now?

• 
• By Nancy Smith
• Qualicum Beach REALTOR®
• Published: Oct 18th, 2021 at 10:00 am

We recently came across this USA chart, displaying U.S. foreclosure starts, beginning in 2005, each quarter results, until October Q3 /2021.

Newswires will be picking up stories describing how Foreclosures are up 50% or even 100%, and by looking at this chart, we can see why.  The US government stepped in at the beginning of the pandemic, and changed the rules regarding mortgages and financing, paying people to quit their jobs, and generally pumping huge sums of future taxpayer money into everyone's pockets.  Well, we know that most of this money was of little benefit for the working class, as Corporations and wealthy investors pumped enormous sums into their companies and hence into rich pockets.  However, this topic is up for plenty of debate and is not relevant to our focus.

When will homes become 'affordable' again?  Homes have never been affordable since mortgages were invented.  This allowed people to borrow large sums with a promise to repay the balance, and pay a fee(interest) for this priviledge.  When interest rates drop, real estate prices miraculously jump, and the reverse is also true, as mortgage rates increase, prices drop.  Why is this?  Fundamentally most wage earners can only afford a certain percentage of their income to pay for housing, whether they buy, or rent.

Borrowing large sums of money is very dependant on a formula of expenses and income, and the lender will want to limit their risk.

During 2009, after the market collapse of 2008, foreclosures peaked, but did investors jump in and buy all the 'bargains'?  No.  Every investor weighs risk, and when home prices are declining, there is almost no incentive to buy. During 2010 to 2020, US (and Canada) foreclosures dropped as investors bought homes in a declining market, to rent to the people who did not have the resources to service their debt.

In short, even when prices have collapsed, desire to buy also collapses. Investors, homeowners and speculators resist purchasing real estate.  There are many other avenues where money can be invested more profitably.

So, if you need a home, or desire to invest in real estate, weigh your personal resources and risk aversion, before you wait for price drops.