Reasons for Cold Real Estate Market

There are currently three reasons for the cold real estate market. One has to do with the availability of loans.  A lot of "sub prime" loans made in the recent past to people who didn't have very good credit are being defaulted on.  Banks are tightening their lending rules, and fewer people are able to get a loan to buy a house.  That situation makes for fewer available buyers. Another problem is the fact that in many areas builders have (at least temporarily) "overbuilt."  That is, they've built more houses than will sell in that area in the near future.  A third problem has to do with the fact that in some areas (California is one of them), many loans made in the recent past were "interest only" which means that none of the principal has been paid down.  Many of those were also adjustable rate mortgages.  Some of these have had the interest rate adjusted upwards, and the people buying the houses can no longer afford their mortgage payments.  Some of these are being foreclosed on.  Also, when they are transferred for their work, someone who has not paid anything on principal reduction and didn't make a down payment, may find that his or her home is worth less than when they bought the property.  These folks are apt to "walk away" and let the bank foreclose.  This tends to put more houses on the market in a "distressed sale" mode at a time when loans are harder to get. This situation won't last forever, but it's rough in much of the country right now.