If you can think of the housing market as a eco-system all its own, with rules of nature and man-made disasters, it is easy to see the rash of HUD foreclosures as the biggest man-made disaster known to humankind. The housing market's eco-system gets further disrupted when human emotion enters the equation. Because, as much as some might hate to admit it, bankers are people too, they sometimes face moral dilemmas when having to move forward on a government foreclosure. They don't have a choice, but they can drag their feet.
That leaves homeowners who aren't paying their monthly installments living in their foreclosed homes. Foreclosed homes for sale are all over, and you can't help but see them as you drive down the streets of almost any neighborhood. Real estate owners who are paying their mortgages, and keeping their home in good condition grumble about the HUD foreclosures, and bank owned real estate bringing down the market, but they aren't really any different on the surface than any other real estate for sale. The fact that not enough delinquent homes are for sale is really what is depressing the market. The reason is, a study from Old Dominion University suggests home owners who are grumbling about HUD foreclosures and other real estate flooding the market, grumble even harder when they see others living in homes they aren't paying for.
In some cases, enough to make HUD foreclosures even more prominent in the marketplace, those grumbling homeowners move past resentment and into not paying for their mortgages either. Why should they, if everyone else can live in their homes for free too? Thus, the eco-system crumbles even further, and the snowball continues to build into an avalanche.
A Healthy Real Estate and Foreclosures Eco-System
In a healthy system, the real estate market absorbs the blows of HUD foreclosures and bank owned real estate. They move along, and offer those special prices on homes that buyers snap up, improve and turn over, or live in. The fact is, most average consumers who drive by never know the difference between a foreclosed home and an everyday real estate for sale sign. It's just another home for sale.
All HUD Foreclosures are Not Created Equal
Just because a HUD foreclosure is listed for sale, doesn't mean the owners were bad. In fact, like always, there are a million reasons a home could fall into default, and they have been doing so for decades. Illness, loss of income, death, divorce and many other reasons are a natural part of the system, and usually result in a normal sale, but once in awhile turn into a HUD foreclosure. They will sell, and the world they exist in will turn as it always has.