Real estate transaction volume hit a 20 year low in Southern California according to DataQuick Information Systems, a well respected reporting firm in the industry. The unit volume dipped below 10,000 units, the lowest number since DataQuick started reporting such numbers. I suspect that the same type of news will be reported as numbers are reported around the country.

An obvious question to ask is “Are lenders dumping properties on the market”? If so, they are creating a compounding negative effect on the market by creating excess supply. Lenders do the math on such issues every day. If they can dump property on the market before the market goes lower, they’ll do it and minimize their loss. The problem is, this “dumping” causes current homeowners to take a bigger hit on value on their home since prices go lower. Good for buyers, bad for sellers.

Everyday homeowners don’t do the math every day and often trail the market downward which costs them more money. There is a tendency to cling to the listing price for too long a period. If the home doesn’t move or have an offer for 45-60 days, the seller grudgingly grants a price reduction. The problem is, the market has beat them to the lower price and instead of it being a “buyer incentive”, the reaction is more like “they finally got with the program, but now they’re just one of the pack”, kind of a “Ho-Hum” situation.

Back to the issue at hand, lenders have insisted that if times got tougher, they wouldn’t dump properties on the market as it would be “harmful”. Well, I believe they are dumping and they are right, it is harmful. Lenders helped cause the problem we’re having (though they aren’t the only culprits), and they should not exacerbate it by dumping their REO properties into an already crowded listing market.

There should be legislation that precludes them from putting all of these homes into the market at the same time as it has a disastrous affect. If they know that their rights to do such things will be limited on the far side of bogus lending policies, they will be more careful with their lending on the front end of the process. Real estate agents and consumers should write to their lenders and voice their disapproval. You do business with them regularly and if they don’t know you’re displeased with the current state of the market, nothing will change in the future.