Foreclosures on the rise
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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 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:
1) 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. Almost everyone was able to get a loan back 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.
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
Though there are signs of stability on the horizon, the National Association of Realtors still reports a sizable inventory of available property. Michelle Meyer, an economist with Barclay 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 are still the largest obstacle to the housing industry recovering.” Consumers borrowing money to buy homes might be surprised at how vast their options are and will be for some time.
4) Unemployment rate
The bottom line in the foreclosure crisis is that delinquencies won’t level off until there are more people working than are now. Experts forecast 2010 to be a still record high for unemployment, especially in the first part of the year. Meyer continued, “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 might take until the middle or end of 2010 to see if the number of foreclosures has actually dropped.
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.
