It's pretty much basic economics that troubles the current real estate market. Too many homes for sale and not enough buyers approved for a mortgage chasing the inventory. Supply and demand are simply out of sync.
The still increasing weight of foreclosures is a big contributor to this imbalance. That is especially acute in states that have absorbed the heaviest damage from mortgages in default, namely Arizona, California, Florida and Nevada. All in all, it is now a nationwide phenomenon.
There are two distinct reasons to that. Banks, the term includes home loan servicers and investors who own mortgage-backed securities, have been incredibly reluctant to focus much attention to the growing problem, namely extending a helping hand to homeowners in distress. It plain looks like they have acted, and still do, against their own best interests.
Washington has crafted several programs in the recent past to do something about it, but the efforts have been half-baked and poorly designed. The attention has largely been on keeping Wall Street from disappearing under the foaming waves of market forces, which doesn't do anything to spur real estate demand, even if the much-criticized industry will eventually be hauled back up on deck.
Stemming the supply of additional foreclosed homes entering the market would bring along a major correction to the current disparity. Some of that may soon be a reality. A major shift appears to be in the works from the government, proposed by the Obama administration. The fresh mammoth plan making its rounds on Capitol Hill would put added emphasis on helping struggling homeowners and it appears to have more bite to it than the earlier ones. More accountability, more direction.
Washington is going for more, though. That's good. To boost the demand side, a new bill that gives homebuyers a tax credit of $15,000, or 10% of the home's value, whichever is less, is also being debated and massaged. Details won't be known for another few days, but the aim is right.
Of course these measures alone will hardly solve the industry's problems all at once, but they would definitely give it a nice confidence shot in the arm.