Here is a good article from CNN.com explaining the problematic cycle I was trying to explain in the last post. The basic point of the article is summed up in this quote:
“Lower prices lead to more defaults, resulting in excess inventory, which causes demand to fall, bringing home prices even lower, leading to more defaults.”
So…that means prices may still have a ways to go down. While Rhode Island wasn’t as overblown as the California and Florida markets it still is showing serious signs of weakness. I was at a conference held buy Countrywide last Friday where one of the speakers, a medium-level executive that represents Rhode Island and several other New England states, said that “…in Rhode Island, 50% of sales are either REO or short sales.” What this means is that 50% of the sales are from foreclosed houses that the banks now own (REO) or owners who are selling for less than they owe the bank (short sales). Since foreclosures aren’t slowing, they’re actually accelerating, I believe prices should continue to drop. When foreclosures finally decrease from month to month, then we may see a bottom finally approaching in the Rhode Island real estate market.
-Martin
