Something that I learned many years ago when I was a young man and worked for a very large manufacturer of big ticket items………When inventory would grow too large, the prices would drop to whatever it would take to move he inventory. Years later, I moved into the retail sector as CEO of a very large chain of big ticket items and a wholesale distribution network of selling some of these products to other dealers in the USA and Canada……………Any time our inventory would grow too large, I would drop our prices to whatever would move it. It doesn’t matter if it’s homes, cars, widgets, etc…………When inventory is too high, prices will drop to the point that it will take to move the inventory. It is a basic fundamental of manufacturing, distribution and retail that this is the thing to do.
In the bubble markets around the country, we already have a much larger than normal inventory of homes………….. add to this…….. the lack of qualified buyers, requiring down payments, no liar loans, tighter restrictions on borrowers, higher mortgage interest rates, etc. and you come up with a recipe for very large price drops to get rid of the inventory. Some builders have already smelled the coffee in Florida and have held auctions where the condos and town-homes brought discounts of 50% from what other buyers paid a year ago. Stubborn sellers who have to sell for reasons of job loss, divorce, un-affordability, etc will have to chase the falling prices of REO’s that the lenders will need to clear from their books, etc. It only takes a couple of homes in your neighborhood that sell at greatly reduced prices to play havoc with the comps when the next person wants to sell their home. This mess did not happen overnight and it won’t clear up overnight.
All this is coming to a neighborhood near you………….very soon.
