
Home Values Continue Their Decline
[Dec 2, 2008.]
It was recently reported via the Standard and Poor's Case-Shiller Home Price Index that home prices dropped 17.4% in September from a year earlier.
The U.S. real estate market is experiencing the largest drop in value since the Great Depression. Record foreclosures, an oversupply of homes for sale, increasing unemployment, and tighter lending guidelines are contributing to the deterioration of home values.
"The real economy took a sharp turn for the worse towards the end of the third quarter," said Pat Newport, an economist with Global Insight, in a recent CNNMoney.com article. "Since then, housing permits are down, the National Association of Home Builders index of activity dropped to a record low in November and purchase loan applications were down 15%. That's telling us the housing market has worsened a lot."
This is bad news for those consumers looking to leverage the equity they have in their home.
Harder to Qualify
Home equity lines of credit require there to be available equity to borrow against. As real estate prices continue to drop, the available equity many consumers were planning to utilize has disappeared. Banks have also grown more conservative with their lending guidelines and require more equity than they had previously.
Those consumers who have purchased their home in recent years without a substantial down payment are most likely unable to obtain a new home equity line of credit.
Unused Credit Can Be Frozen
Consumers who had previously obtained a home equity line of credit based on a home value higher than the current market supports are seeing the unused portion of their lines of credit being frozen. Banks, cognizant of the fact that real estate prices have dropped, are beginning to limit their borrowers' ability to continue to draw against their credit lines.
The U.S. government is currently exploring various proposals to help stabilize home values, make credit more available to consumers, and stimulate demand for real estate, however, some experts believe it may be years before we see any substantial turnaround.
About Author:
Chris Rocks is the Regional Director of the National Credit Federation (NCF), a consumer advocacy group that assists small business owners and consumers overcome debt and credit challenges.
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