Double Dip in Housing Market

The US housing market started a major market decline in 2007. Excess housing inventory, market recession, increase in foreclosures, and bank failures were several of the factors that caused a domino effect that resulted in a collapse of the housing market. The housing market declined for two years before the slid stopped and the first signs of improvement appeared in 2009. During that year the market increased gradually as a result of the first time homebuyer credit. Starting in 2010 the housing market experienced a “double dip.”

A double dip occurs when a market experiences a decline then an increase and then another decline. The second decline usually occurs shortly after the initial decline. A double dip occurs when a market experiences more factors that cause a decline that were not present in the initial decline.

The increase in the housing market in 2009 was fueled by the tax credit Congress passed for first time home buyers. Last year the majority of the houses sold were foreclosures instead of owner occupied properties. Banks were motivated to sell their inventory of REO (real estate owned) properties even if it meant selling them at a steep discount. First time home buyers were attracted to buying because they were able to buy a home at a substantial discount and they were given a tax credit. When the tax credit expired, the number of homes sold plummeted.

This decline in the number of homes sold was the start of the double dip in the housing market. Other factors that have contributed to this second decline are the shadow market of non-performing mortgages that banks have delayed foreclosing on. Many homeowners have been delinquent and banks have been reluctant to foreclose on these properties because of their inventory of REO properties. As their inventory of REO properties were cleared out by first time home buyers, banks have increased their foreclosure activity.

The reset of ARM (adjustable rate mortgages) have also contributed this second decline in the housing market. Homeowners are experiencing much higher monthly payments and some are falling behind on their payments or facing foreclosure.

The recent recession of the market has also impacted the housing market. With unemployment over 10 percent, unemployed homeowners are unable to stay current on their mortgage payments. Potential home buyers are not willing to put down the 10 percent required to purchase a house with all the market uncertainty. This has lowered housing values even more.

There have been many factors that have contributed to a perfect storm of factors that have resulted in a double dip of the housing market.