Foreclosures on the rise
Despite bailout efforts, foreclosure rates remain high
Despite credit cards, borrowing money and government aid, many homeowners lost their homes to foreclosure. A recent Mortgage Banker’s Association survey held that one in seven home loans in the US were foreclosure or at least past due. That’s the highest delinquency rate since the survey began in 1972. Jay Brinkman, the MBA’s chief economist said, “Despite the recession ending in midsummer, the decline in mortgage performance continues. Job losses are still happening, and delinquencies and foreclosures are still rising – in order to pay for mortgages, people need paychecks.”
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:
1) A deeper look at the economy. The MBA did research on what really started the economic downturn in terms of housing and its beginning was the subprime mortgage loan crisis. Almost everyone was able to get a loan back in 2006 and 2007. When the unemployment rate went up, that didn’t bode well for the housing industry. Brinkman said, “A job loss, after all, can prevent even borrowers with sound credit histories from paying the mortgage.” Subprime mortgages may have started the problem, but when people with good credit were losing jobs, foreclosures started happening even faster.
2) Geographic locales. Some areas were obviously affected more than others by the number of foreclosures. For example, Nevada, Arizona, California and Florida are the hardest hit states when it comes to 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.
3) Large 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.
4) 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 are predicting that 2010 will still be a time for high unemployment, in particular at the beginning 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. It includes everything from the number of available homes, methods for borrowing money, unemployment rates, and recovery specific to individual areas. It is going to take time for the signs of recovery to shine through.
