What Will the 'New' Real Estate Market Look Like?

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What Will the ‘New’ Real Estate Market Look Like?

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It is clear to real estate industry insiders that the real estate market as we have known it for the past two decades will be significantly changed in the future. The combination of robo-signing, foreclosure fraud, mortgage-backed securities, and general chaos in the marketplace has already led to significant changes, and a full-blown overhaul of the process is a virtual certainty.

With that in mind, what will this ‘new’ real estate market – in actuality a heavy revision of the old one – look like?

The Zero-Down, Subprime Credit Days are Over

During the run-up to the bursting of the real estate bubble in 2007, homebuying was at an all-time high. People needed homes, of course, but investors also wanted quick and easy profits. Banks began to severely relax their lending standards, giving home loans to a wide variety of investors and homebuyers far beyond, in many cases, their budget.

We all know what happened next. As a result of the bursting of the bubble, the days of going into a bank, putting nothing down on a home, and buying a property with subprime (or even prime) credit are over – and in most cases, that’s a good thing. Now, homebuyers and investors will have to put a significant down payment and will have to have prime credit at the very least.

We expect that current lending standards are a bit too strict and will lessen somewhat over the next 18-36 months. But the heady days of easy loans and snap-your-fingers approval are gone for good.

Foreclosures Will Increase Dramatically

Expect more foreclosures to increase – but also expect the foreclosure process to change.

Over a million foreclosures have been delayed so far by banks eager to avoid the foreclosure mess that has ensnared the industry so far. These foreclosures were supposed to enter the market naturally, but are now delayed to 2012 or even the first quarter of 2013. These foreclosures will impact the market and in select areas – namely on the coasts – will drop prices substantially.

As far as the actual foreclosure process is concerned, lenders will have a tougher path toward foreclosing on defaulted loans. This is because the impending settlement with the government will likely result in safeguards put into place to prevent wide-scale, faulty foreclosures from occurring as they did in the past four years. The reformation or removal of MERS could also be a reality.

Home Prices Will Stabilize

One can also expect to see real estate values and home prices stabilize, as new measures are put into place to limit the boom-and-bust cycles that have marked the real estate market for the past 50 years.

This means that fewer investors and homeowners will face financial ruin in the middle of a prolonged housing slump. This also means that obtaining a favorable position now – when the market is still in the cycle – is advantageous for the future before markets stabilize and reach solid footing.

The presence of foreclosure deals on the open market, and a wealth of buying opportunities, makes for new and exciting potential for the real estate market that will certainly change for good – and soon.