My Dad always said that if you stretch a rubber band too hard, it will either snap your fingers or break. It reminds me of the stretched underwriting standards that we had for housing years ago.

The Federal Government loosened the existing standards so most people could afford to borrow money for a house. There were Realtors in the industry who said that this was wrong, since things can change in people's lives. Most Realtors believe that the market upswing years ago was investor driven.

Now, the underwriting standards are just too tough for a decent buyer pool. We need a balance, but I understand the vicious cycle that the banks are seeing. The rates are unbelievably low, but the standards are unbelievably high.

This reaction for higher standard is because of the high foreclosure rate in the housing market across the country, however, loose underwriting scores is not the total reason for the decline. A little known fact is that after reviewing the credit scores of recent foreclosures is that the credit scores of the victims was 780. These were people who paid their debts on time.

So what is the perpetuating problem?

We have a high unemployment rate as well as under employed rate. Jobs that were are no longer because of the general economy woes. People are not buying, they are tightening their spending. Add to that fact, that the people who purchased homes had 3-20% down, and when we were appreciating at unbelievable rates, these same people took out the encouraged home equity borrowing.  With the recent turn of events, the Chicagoland real estate values have declined 25%. So put 2 + 2 + 2  together, you have people who lost jobs, or found jobs that are affording them less money and their home values have gone down.  Their home equity wasn't being supported by the housing prices.

It was in the News today, that the Federal Chairman Bernanke believes that the lenders are now being too tight for sales to occur and our economy is depending on them to loosen it. This is a hard position for the Lenders: their guidelines have failed before and now the Government is asking them to take a risk. One of the guidelines is that the buyer has to have his occupation for 2 years. Well, given the state of the general economy, that might be tough to find that buyer who is willing to risk his savings, in a market of declining values.

Our supplies (numbers of houses on the market) of normal sellers (not foreclosure or short sale) is coming down, so our prices are being driven by the foreclosure -short sale market. House values are down, so the normal sellers are waiting out the market for more balance.

The dreams of buyers are for a well valued home, that has had maintenance and care and those houses are a short supply. Buyers are wanting not to wait 6 months or longer for a Lender to decide if the short sale will be approved, and Realtors and the buyers are wondering if the value today on a contract will hold 6 months from now. The foreclosure market lenders are "dumping" the houses.

Realtors are understanding the catch 22. We hope that the guidelines for the Lenders will ease so more buyers will come to the market and we will have some balance. We are hoping for more signs of recovery, less inventory, so our normal seller will join the market and help stabilize prices.