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May 22nd, 2009

Falling Home Prices Also Hurting Sales



The current real estate market is saddled with many problems — falling home prices being one. As we’ve before, while falling home price do attract buyers looking for a bargain, they hurt the seller by limiting the profit they can make — if any — on the sale.

HUD’s announcement that the first-time homebuyer tax credit can be used as a downpayment has been big news the past two weeks. The inability of many first-time homebuyers to comply with today’s stringent downpayment requirements (usually 20%) has kept many from home ownership. According to the National Association of Realtors, the average first-time homebuyer has only saved enough to make a four percent downpayment.

While initiatives have been designed to bolster downpayments for first-time homebuyers, why haven’t there been any for all homebuyers? In today’s market, falling home prices have drastically limited the seller’s profit — thus shrinking the amount the seller has been able to pony up as a downpayment to buy a new property. If the seller-turned-buyer can’t accommodate a lender’s downpayment requirement, than that’s another potential home sale down the tubes.

This is just another example of why falling home prices are ravaging the real estate market. Should all borrowers — whether first-time or not — be allowed to get a $8,000 tax credit as a downpayment? Why or why not?

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About the HSH Blog

HSH.com's daily blog focuses on the latest developments in the mortgage and housing markets. Our mission is to relate how changes in mortgage rates and housing policy, as well as the latest financial news, impacts consumers, homebuyers and industry insiders alike. Our 30-plus years of experience in the mortgage industry gives us an edge as we break down the latest changes in an ever-changing market.

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Tim Manni

Tim Manni is the Managing Editor of HSH.com and the author of their daily blog, which concentrates on the latest developments in the mortgage and housing markets.

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