When selling your house in today’s economy, the last thing you want to worry about are dropping real estate prices. Over the last 3 years, most Americans have had to worry about this problem and the problems that result from a high inventory of homes on the market. Some homes may be nice while others are distressed and only hurt overall prices.

According to a home price research firm, the median price of existing homes nationwide fell by 27% over the last four years. In some larger cities, median home prices plunged by as much as 68%. On average, home prices in today’s market are comparable to what homes were selling for in the late 1990’s to early 2000’s. So what are some of the factors that have decreased home prices?

Underwater Mortgages. With the drop in home prices, many home owners find themselves owing more then what they can sell their home for in today’s market. While some owners walk away, many decide to either stick it our or try and negotiate a short sale with their mortgage company.

High Inventory. Anytime there is a surplus of inventory or supply in any industry, prices tend to decrease to account for an increase in competition and low demand. Many people are losing their jobs or have received job transfers putting them in dire need to sell their home fast. Dropping their selling price may seem like the best solution, but overall this decreases all home prices.

Foreclosure Increase. Foreclosures and short sales may be the leading contributor to the continued home price decline. According to RealtyTrac, in 2010 more then one-third of home sales were either short sales or foreclosures. These homes have been a burden on the average home seller trying to get top dollar for their homes. According to other studies, it may take years to work through the excess inventory. An increase in demand is needed in order to reverse the trend.

In Conclusion, what will it take for an increase in home prices?  While the slow economic growth and high unemployment rate have been pushing down home prices, there may still be a silver lining in today’s economy. September 2011 showed the largest increase in new home construction at a 15% increase over the previous months. Many large cities have also had a large increase in home sales compared to last years marks. Gradual job increases accompanied with historically low interest rates may keep the US on track to increased home prices leading into 2012 and for years beyond.