Friday, June 13, 2008

Foreclosures Up

In article from todays Yahoo News courtesy of the Associated Press there is an article called US foreclosure filings surge 48 percent in May. That is devastating news. We hear about the buyers picking up deals on the rebound, but what about all the people who will be left out of the house buying process for years to come. That number is clearly rising. Here is a few graphs from the article -

The number of U.S. homeowners swept up in the housing crisis rose further last month, with foreclosure filings up nearly 50 percent compared with a year earlier, a foreclosure listing company said Friday.

Nationwide, 261,255 homes received at least one foreclosure-related filing in May, up 48 percent from 176,137 in the same month last year and up 7 percent from April, RealtyTrac Inc. said.
First this is a huge increase over the last year. That is 261,255 homes that are currently in some state of the foreclosure process - that does not include homes in the foreclosure process that did not have a filing in May, so the numbers are probably even higher.

The combination of weak housing sales, falling home values, tighter mortgage lending criteria and a slowing U.S. economy has left financially strapped homeowners with few options to avoid foreclosure. Many can't find buyers or owe more than their home is worth and can't get refinanced into an affordable loan.

Making matters worse, mortgage rates have been rising, reflecting increased concerns about what the Federal Reserve might do to battle inflation. Freddie Mac, the mortgage company, reported Thursday that 30-year fixed-rate mortgages averaged 6.32 percent this week, the highest level in nearly eight months and up sharply from 6.09 percent last week.
The increase of interest rates will cut into what buyers can afford. In order to turn over the properties prices will have to decrease even more. Those ARMs and Option ARMs - that once made very expensive properties appear to have affordable monthly payments - are no longer available. The time when you could state your income to purchase the home of your dreams - that is also a thing of the past.

Rick Sharga, RealtyTrac's vice president of marketing, said foreclosures are unlikely to peak until sometime this fall, as more loans made to borrowers with poor credit records reset at higher levels. "I don't think we've seen the high point," he said.
When the rest of the ARMs reset and the Option ARMs recast we will see a huge swell of homes going into foreclosure. The high point will come in the next few years. And so the downward spiral goes.

As foreclosed properties pile up, they add to the inventory of homes on the market and drag down home prices. The trend is most dramatic in many parts of California, Florida, Nevada and Arizona, where prices skyrocketed during the housing boom and are now falling precipitously.

Sales of foreclosures, vacant new homes and other distressed properties now dominate some markets, causing grief for individual homeowners who need to sell for other reasons, like a job in a new city.

Nationwide, one out of every four sales between January and March was a distressed sale, and that figure jumps to more than 50 percent in the hardest-hit areas like Las Vegas, Detroit and distant suburbs of Los Angeles, according to Moody's
Sellers are going to have to compete with banks. The banks will eventually just want to unload the properties at any price. It is a good time for buyers, but there is a much smaller pool of buyers now.

This is rough news. It will continue the downward housing spiral. As more homes go into foreclosure, prices will fall. As prices fall more people will be underwater. This in turn will increase the rate of foreclosure. And so the cycle goes until something stops it.

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