As we all know, the market has been flooded with a huge number of bank-owned properties. To liquidate this inventory rapidly, the banks have been slashing the prices, often by hundreds of thousands of dollars, just to clear them off of their books. This, in turn, is driving all values down at an accelerated rate. At times, it seems there is no end in sight.
However, there is not an infinite number of bank-owned properties. Actually, the percentage is actually pretty small- 1% to 2% at the most of all of the homes out there, depending on which market you are looking at.
At some point, which could be within the next year or so, all of the bank-owned inventory will be gone. When this happens, the only people left with houses to sell will be those that owe more than it is worth. This will create a shortage in a very short amount of time. Then, guess what? Values will bounce back up in a very short time, because, by the laws of supply and demand, there will be a low supply and larger demand.
I wasn't here in the 1990's when this happened before, but I know that it was a similar situation. Home values plummeted around 40% and people were swearing off real estate as a bad investment. 10 years later saw one of the hottest markets in history.
I doubt we will see that same frenzy that we saw in the first half of this decade, but I am convinced that we will recover and home values will bounce back in a short time after the bank-owned inventory is mopped up. There are two things that will never change: people want to live in their own house and banks are in the business of lending money.
So, if you are in the market to buy a home, I would suggest that you do it before the "bounce".