Foreclosures on the rise
Despite credit cards, borrowing money and government aid, many homeowners lost their homes to foreclosure. A recent survey done by the Mortgage Bankers Association showed that one in every seven home loans in the US were either past due or in foreclosure. That’s the highest delinquency rate since the survey began in 1972. Jay Brinkman, chief economist for the MBA, said, “Despite the recession ending in midsummer, the decline in mortgage performance continues. Job losses continue to increase and drive up delinquencies and foreclosures, because mortgages are paid with paychecks, not percentage-point increases in GDP.”
Signs of the times
It may seem contradictory to an improving market that foreclosure numbers are up, but a closer look at what is happening shows that it is appropriate. Here are some reasons why:
- A deeper look at the economy. The MBA researched what really triggered the downward slide in the housing market, and it started with the subprime mortgage loans. Just about everyone was able to get a loan in 2006 and 2007. When the unemployment rate began to climb, the labor market pushed hard against housing industry. Brinkman stated, “A job loss, after all, can prevent even borrowers with sound credit histories from paying the mortgage.” Subprime mortgage holders started the problem, but when consumers with good credit started losing jobs, foreclosures began rising even quicker.
- Geographic locales. Some areas were obviously affected more than others by the number of foreclosures. For instance, Arizona, Nevada, Florida, and California are the states with the most depressed properties. Studies have shown that Florida for example, has a delinquency rate of 25%, which means one in every four homes is either past due or in foreclosure.
- Huge inventories of depressed homes. Although there are signs of stability on the horizon, the National Association of Realtors still notes a huge inventory of available properties. Michelle Meyer, economist for Barclays Capital, said, “We continue to believe that nearly 6 million foreclosed homes will enter the market over the next three years, which will keep inventory of existing homes elevated. Foreclosures remain the biggest hurdle to the housing recovery.” Consumers who are borrowing money to purchase homes may be surprised at how vast their home options are for years to come.
- The unemployment rate. The bottom line of the foreclosure crisis is that mortgage delinquencies are not expected to level off until the labor market is cured. Experts forecast 2010 to be a still record high for unemployment, especially in the first part of the year. Meyer added, “The delinquency rate is going to stay up there for a while because the job market is going to be really weak for a while.” It may take until mid- to late-2010 before true signs of a drop in foreclosures are evident.
Despite the signs
Despite signs of stabilization, experts warn that the foreclosure crisis is far from over. When it comes to true economic recovery, consumers have to be concerned with the big picture. That includes everything from the number of homes on the market, new methods for borrowing money, the unemployment rate and geographic recovery of the hardest hit economies. It is going to take time for the signs of recovery to shine through.
