The following excerpt is from an article written by Lawrence Yun, National Association of Realtors Chief Economist in the Realty Times on July 3, 2008:

Soft Data from REALTOR®® Members

There are a measurable number of potential buyers who have the financial capacity and mortgage qualifications, yet are refusing to jump into the market because of price decline fears. These hesitant buyers far outnumber the people who are unable to secure a mortgage.

The implication is that once there are signs of market stabilization then we may see a rush of buyers returning to the market. The recovery could be robust rather than tame. It also implies that the homebuyer tax-credit being discussed in Congress right now as part of the housing stimulus bill could make a big impact in drawing buyers to the closing tables.

Separately, I have received a lot of feedback from Realtors®® across the country about some unique factors that are not yet being captured in hard, quantifiable statistical data. The common themes are:

(1) Short sales are excruciatingly frustrating because lenders take forever to reply

(2) REO (bank-owned) properties are getting multiple bids and selling above list price

(3) Homes sell without a problem if priced correctly

(4) Many eager buyers cannot buy because they cannot sell their existing home

(5) Buyers of fixer-uppers are not buying because of the high cost of construction

(6) Builders are selling for less than the cost of construction and hurting the existing home market

(7) Low appraisals are leading to fallouts

(8) High gas prices are impacting neighborhoods far out from the city

(9) The media is painting inaccurate picture not related to my local market conditions and scaring away the buyers

(10) Buyers are waiting for the prices to drop further before committing

Most of these factors, as I see it, point to sizable pent-up demand waiting to be released into the marketplace. Particularly intriguing is the prevalence of multiple bids - after prices drop. Once it begins to take place, many buyers will be buying on the way up rather than on the way down. As is always the case, the market bottom will have been realized only after the fact.

Copyright National Association of REALTORS®®, Reprinted with permission. 

Freddie Mac counts foreclosures as a major credit black mark for seven years and is now aggressively pursuing walk-away borrowers, where permitted by law. Sending the keys back to the lender comes with rigid consequences which should be fully understand before a foreclosure.

The borrower will be unable to get another mortgage through Fannie Mae for five years, unless there are “documented extenuating circumstances.” In that case, the prohibition is three years. Even after the prescribed time has elapsed, a borrower with a foreclosure in his/her file will have to make at least a 10% down payment and have a FICO credit score of at least 680 to qualify for a Fannie Mae loan.

The short sale is by far the better option to a foreclosure, provided there is evidence of hardship. A short sale occurs when home owners negotiate loan modifications with lenders and have portions of their principal debt forgiven. A Federal legislation was enacted last year to eliminate tax liability for the amount forgiven in a short sale. 

By contrast, the debt from a foreclosure is not forgiven, and according to the Internal Revenue Service, the borrower may have to pay taxes on the unpaid balance.

A short sale occurs when a mortgage servicer agrees to accept less than they are owed for an outstanding loan

There are many ways to lose a home but signing away ownership in a manner that destroys credit, embarrasses the family and strips an owner of dignity is one of the hardest. For owners who can no longer afford to keep mortgage payments current, there are alternatives to bankruptcy or foreclosure proceedings. One of those options is called a "short sale."

When lenders agree to do a short sale in real estate, it means the lender is accepting less than the total amount due. Not all lenders will accept short sales or discounted payoffs, especially if it would make more financial sense to foreclose; moreover, not all sellers nor all properties qualify for short sales.

If you are considering a short sale, consult with a competent real estate attorney and make sure you know your lender’s requirements.

Source: About.com