The housing market has been in turmoil for quite some time. Between the high foreclosure rate, increasing number of underwater homes and a stagnant sales market, the real estate industry has its work cut out for it. There are some immediate consequences of a foreclosure market, and some long term effects that extend into the areas of buying and selling a home.

Immediate Effects

Foreclosures don't just leave the defaulted homeowner without a home, but have the potential to impact the entire neighborhood. A single foreclosed home can drag down the home values of the surrounding homes. Multiple foreclosures in a single neighborhood can bring problems with negative associations and opinions of the neighborhood, increased crime and additional costs for the city. Many foreclosures sit abandoned for several months, encouraging crime such as vandalism and trespassing. The city is also put at risk of carrying the financial burden of maintaining the property in order to keep up city code enforcement.

Buyers And Sellers

Sellers are also having a tough time in a foreclosure saturated market as many people are finding it difficult to sell their home. One of the biggest reasons for difficulty selling is the discrepancy between home value and home price. Sellers of a non-foreclosed home are often reluctant to drop their price and carry an unrealistic opinion as to their home's value. The truth is that home values have dropped, often through no fault of their own. However, this means that the seller isn't going to be able to get an offer nearly as high as what they could have received a few short years ago. In order to attract more buyers sellers are better off pricing their home very competitively, or even lower than desired, in order to encourage a bidding war on the home and drive up the price. Similarly, sellers should avoid expensive or taste specific upgrades as these drive away buyers in today's market who are often looking for a better deal on a fixer up, rather than overspend on an already upgraded home.

Buyers are in a unique position in a foreclosure saturated market as they have the most to gain. With prices lower than the value of the home in either a foreclosure or a short sale, buyers can secure a great deal on a home that may have been out of their price range a few years ago. Further, the saturation means more selection and the ability to find the perfect home. Although many foreclosures or short sales may require some updating or renovations, many homeowners can still obtain a better deal than a fully upgraded home at a regular price.