Sales of existing single-family homes were down 30% last year from the 2005 level, while new-home sales showed a record-breaking plunge of more than 60% from 2005 to 2008, according to the Harvard report.

Many Wall Street analysts covering the home-builder sector remain skeptical of talk of a sustained recovery. “Overall, the California builders and construction companies we met with echoed what we have been hearing throughout the U.S.: that there was clear momentum in sales in the spring, but concerns still remain around the sustainability of the improvement we have seen,” said Barclays Capital analyst Megan McGrath in a note recapping a recent industry conference.   “The availability of credit, to both builders themselves and to home buyers, continues to be challenging,” McGrath wrote. “While it appears that banks and mortgage lenders are willing to do some construction-only loans to builders, land-related financing appears to be relatively non-existent.”

According to the Mortgage Bankers Association, at least 3.2 million homeowners entered foreclosure in 2007 and 2008, and an additional 600,000 entered foreclosure in the first quarter of 2009.   Mortgage servicing companies and lenders continue to report a flux of loan modification applications, so we know the demand for foreclosure prevention measures still exists.  Despite these dismal foreclosure figures, the Harvard report did see some long-term positives for the U.S. residential market. In particular, it cited demographic trends such as expected demand from immigrants and so-called echo boomers, or the children of baby boomers. 

This new housing report shows that 20% of homeowners in Silicon Valley owe an outstanding mortgage balance that is greater than their property value.  According to real estate news company zillow.com, during the 4^th quarter of 2008, nearly 20% of homeowners in the San Jose metro area were experiencing “negative home equity.” Home values vary greatly in some Santa Clara County neighborhoods.  This is the most significant decline in over a decade. Many home financing evaluators are predicting that mortgage modifications will reduce foreclosures in 2009.

When people are concerned about their income and savings disappearing, fewer will purchase homes despite low mortgage interest rates and falling prices.  It is a difficult time for homeowners with these drops in values, but most real estate experts believe that home values will rebound eventually. Until then, FHA continues to extend a great opportunity for 1st-time homebuyers previously priced out of the market. Low interest rates along with lower home prices, especially foreclosure properties, are encouraging more new home buyers.