If many people lose their houses to foreclosure, that puts a lot of houses on the market that otherwise wouldn't have been there. The pool of buyers doesn't increase as much as the number of available homes do (all those people who lost their houses are not in a position to buy another one), so there is more of a supply of houses than demand for houses. Now there is less competition because buyers know they have a lot of inventory to choose from, which makes sellers (inluding the banks who now own the foreclosures) lower the prices to remain competetive and attract buyers to the property. Also, with a high number of foreclosures, banks are wary of who they will lend money to because they don't want to see more foreclosures. They take less risk with loans. As it gets harder to qualify for a loan, fewer people have the money to actually buy the houses. If people can't afford the houses, prices will drop so they can be sold.
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11-17-2008, 11:05 AM
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