Declining Real Estate Values

Topics: Real estate, Subprime mortgage crisis, Mortgage Pages: 14 (4315 words) Published: December 10, 2012
Falling Real Estate Values
Tammey L. Amodea – Winter 2012
Hodges University

MNA4100OL_Amodea T _ Trimester Project
Mike Smith
Due: February 27, 2012
Submitted: March 6, 2012

The rise and fall of real estate property values are impacted by many facets and can lead to a positive or negative impact upon the economy. Furthermore these impacts can be minimal or dramatic. Through research and critical thinking the following report is designed to educate the reader on how the industry operates and the cyclical nature of the industry. Upon completion the reader will have gained moderate insight as to entities and factors which create real estate property values as well as the entities which can negatively or positively impact the value of real property.

The objective of this report is for the reader to gain a better understanding of how the real estate market and its processes are accomplished so that the average homeowner can achieve homeownership. Primarily the report is prepared so that the reader can also comprehend how property values are determined, and how property values impact the economy. The culmination of all research for this report will aid the reader in recognizing why real estate values have declined during the recent recession.

As a Licensed Realtor, the writer of this paper will explain the influences which determine property values, what drives real estate value, why real estate values are driven up or down and who determines true real estate values. The writer will further explain how home values impact local city, county and state budgets.

During the recent recession there were admittedly other mitigating circumstances, which assisted in the swift decline of home values ultimately thrusting the topic of the declining real estate values into the forefront of economics.The writer will also offer an experienced first-hand opinion on how Realtors, sellers and buyers contributed to the demise of the current real estate market and how they can also become part of the solution and aid in driving home values towards a steady market trend.

Back Ground
The real estate industry was thrust into the forefront of the current recession due to many factors. The most important factor is the so called “real estate bubble” bursting. The real estate industry is cyclical in nature, sometimes these cycles are more painful than others, as recently experienced in the real estate market crash across the United States. Although the cause each time the cycle goes around varies, the one true constant is the impact that real estate values has upon the economy.

Mark Dotzour the Chief Economist at the Real Estate Center at Texas A&M University claims that there is not a true start and stop to the cycle of the real estate industry (Geffner, 2008). In a normal real estate market, when interest rates rise, housing prices fall; therefore, making a home purchase for an average consumer difficult and costly. The same can be said for just the opposite in the real estate market – when interest rates fall home prices rise; therefore making a home purchase for an average consumer easier, but not necessarily less costly.

Even though the real estate industry is in fact cyclical in nature, the current economic cycle of 2006 through present is regarded as a severe real estate crisis. It is impossible to say that there is only one factor which contributed to the real estate bubble bursting; however, the law of gravity: what goes up must come down, is evident in real estate values as well. When real estate values rise and interest rates are lowered consumers purchase homes in frenzy, fearful that the dream of homeownership would be lost to them forever due to exorbitant values.

As consumer demand for housing rises, builders build. As builders build the economy is impacted positively with the hiring of employees. As employees are hired they in...

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