A good portion of US home owners are distraught over the fact that they now owe more on their mortgages, than their homes are worth. In light of the most recent economic news, it looks like the economy will depress further before it improves. Here are four reasons why we will likely see home prices drop over the next few years.

The Amount of Homes for Sale has Increased over Recent Months. – This is the most basic element learned in Econ 101. If there are more homes for sale than there are potential buyers, real estate prices will decline. With inventory too high, the only homes that sell are the least expensive properties. This leads to a drop in real estate values.

The Number of Foreclosure Homes Continues to Rise. – There are two main ways in which foreclosures drive real estate values down. First, foreclosure homes lead to lower values by adding additional suppy to the already oversupplied housing market. Foreclosed homes also contribute to lower home values because they are generally neglected, make neighborhoods less appealing, and sell for less than other homes. Homes that sell now, will become the comparables used for appriasal pricing for future sales. As sales prices go down, the comparables used are less, making it harder for homes to appraise at the purchase contract price.

The Economy Needs to Improve. – Thousands of American’s who wan’t jobs can’t find jobs right now. Most American’s rely on jobs to provide the money to make house payments. Since almost all buyers need mortgage loans to buy real estate, people need jobs so they can qualify for a mortgage.

Real Estate Values Are Statistically Higher Than All Time Averages. – According to Case Schiller, current home prices are about 30% higher than the average home price over the last 120 years, adjusted for inflation. Most modern homes are larger than older homes, but even factoring in home sizes, home prices are still above all time norms.

Every real estate market is different. Homes for Sale in Naperville might not drop in value at all. Newton Homes for Sale could see substantial price declines. Real Estate in Canton Georgia might not see price decreases or increases. We don’t know what will actually happen, or how bad things will be, but overall the numbers indicate further declines in home values.