Why is there a lack of houses in the under $200,000 real estate market?

I have read and heard complaints from Realtors, especially in the under $200,000 market, that there is a lack of inventory; isn’t that hard to believe, especially with the all of the foreclosures that are being reported? Don’t get me wrong, I am not disagreeing with that fact. I whole heartedly agree with it.

Why can’t we find properties in those prices ranges? From my point of view, I believe that the decrease in inventory can be attributed to many factors of which one I believe is that the banks are holding onto some of their REO properties. Why would the banks do this? It is quite simple. If they slowly let their inventory back onto the market, then there is a better chance that prices would not continue to decline. If the banks dump tons of foreclosures on the market, then the price of the existing homes will continue to decline, which will hurt them in the long run when they try to unload future foreclosures.

The second reason for this is that many lenders are simply slowing down or not foreclosing on homes that are delinquent. I know of one particular borrower who has not made a payment for 2 years and he is still living in the home. Why would the bank allow that to happen? For this particular instance, the house was purchased for $325,000 and now it is worth $225,000. Not to mention the fact that there are numerous empty homes in his neighborhood. The bank must think they are better off letting someone live in the home and taking care of it so it does not get vandalized.

The third reason is that borrowers are using the available procedures to slow up the foreclosure process. The strategies range from loan modification, a strategy called “get the note”, short sale and finally bankruptcy.

The fourth reason for limited inventory in this price range is the first time home buyer incentive. This has brought out first time home buyers who typically buy in the under $200,000 price range.

For those of you waiting for inventory fear not, you will have your wish in the coming years as there are many more foreclosures that have to wind itself out into the market place. Let’s us hope that there will be enough buyers to buy them when they come out.