Why are homes prices falling?

WHEW? That's a tough one. There are a million different components that go into the answer.

The bottom line of it all, though, is pretty simple. There are many more houses on the market today than there were a while back.

Real Estate is one of the few places you can go to witness a textbook definition of "marketing 101" - the law of supply and demand.

When supply is high or demand is low -- prices drop.

When supply is low or demand is high -- prices rise.

Real Estate is in an intensely local market so you'd have to look at your own area specifically but in many areas today, the number of homes available for purchase may be 200%, even 300% higher than 2 years ago.

There are people buying houses - every day. The difference today is that they have many, many more houses to choose from. When this happens there are two big results:

A house takes longer to sell and the prices being offered are less.

These two phenomenon feed off of each other in what seems to be a self-perpetuating cycle. When a house takes longer to sell, the seller reduces his asking price. He must do this in order to attract the buyers. Once he lowers his price, his competitors (the other home owners who are trying to sell) must also lower their prices in order to attract the same buyer pool. This continues to drive prices down and makes a buying decision even tougher. The buyers want to wait out the sellers to make sure they are getting the "best" price they can.

The recent sub-prime debacle has made this situation even worse because many of the home owners who got in over their heads a year or two ago now find they can't afford the payments on their homes and they are adding their properties to the already crowded market.

When it will end remains to be seen - but it will turn around at some point. It always does.

If you have a need to move - whether you are buying your first home or selling yours to buy a new one - you can do it. Consult a Real Estate professional and figure out a plan to accomplish your goals. In spite of all the problems with too much inventory and falling prices - people are buying and selling houses every day.