Just when the average homeowner thought it was safe to dip their toe back in the water, bad news finds them once again. As much as the housing market has been hopeful for some positive news, and has been seeing some, trouble is still lurking in the deep waters. While the news agencies would like to have the average citizen to believe that the economy is on the rebound and the housing market is seeing signs of life once again, there are forces that will continue to pull it down.
There’s no need to consider that the recent positive news in the housing market has been a mirage, but foreclosures so far this year have been on the rise. As most professionals will attest, a rise in foreclosures will usually indicate more problems for the housing market to come in the future. During the first three months of this year, foreclosure filings have increased to a total number for this year at the end of March was 930,000 homes. That’s a 7% increase from the previous quarter.
Compared to the same period of 2009, it’s a 16% increase. For more sobering numbers, RealtyTrac, which monitors home foreclosures, reported that foreclosure filings in March were a record 367,000 and nearly 258,000 or those were bank repossessions. That last number is the highest that RealtyTrac has ever recorded.
Not all that it seems
This rise in foreclosures is certainly sobering news for the housing market, but a part of the reason for these numbers has to do with several factors. Some banks had been holding off on filing in order to avoid collapsing the entire housing market with an influx of homes, and others were heeding the request of the Obama administration that urged them to delay foreclosing last year.
How will this affect the market overall?
As any industry professional will testify, when there is an influx of foreclosures, the average home prices will tend to decrease. Some regions of the nation can’t seem to afford another drop in their real estate values and homeowners certainly don’t want to see their investments lose ground more than they already have, but this may be setting the market up for another drop this year into the next.
Analysts had predicted an increase in foreclosures for the aforementioned reasons and as such, had predicted that the average home prices would decrease throughout the year, but nothing compared to what was witnessed during 2008 and 2009. Some regions of the country, including Nevada and Michigan, for example, have seen major increases in foreclosure (Michigan’s foreclosure rate jumped 75%) and will have to deal with the residual effects of that jump.
For homeowners in those hardest hit areas, this will mean that a recovery that is being reported and experienced in other parts of the nation will most likely take longer to reach them. Add to that a reluctance of investors to buy into these hardest hit regions and the timeline becomes that much longer.
Could the worst be over now?
Analysts predict at this time that the foreclosure crisis should begin to see signs of diminishing. With the federal government stepping up its efforts to aide homeowners who are in trouble through loan modification and now encouraging short sales, there are other recourse options available. Yet, if people aren’t willing to invest in real estate and the foreclosed homes enter a market with fewer buyers, then the prices of homes will be dragged down. This is basic economic principles at work.
However, the indications are that the worst is almost over and the housing market will begin its slow, yet deliberate climb back out of its worst ever crisis.
Archive for ◊ May, 2010 ◊
So much attention has been given lately to the number of foreclosures that we should expect to see in the United States over the coming years that few people have stopped to consider why exactly foreclosures happen in the first place.
I am going to be a little glib here and say there are about as many reasons why foreclosures happen as there are home owners defaulting on their loans but that would not help answer the question so I am going to take a more general view and see if the reasons a foreclosure happens can be fitted into different categories.
So let’s take things from the beginning and see if we can form a good picture. The obvious answer of course is money, or rather the lack of money. But the reason a home owner who has attained the Great American Dream of buying his own home can no longer afford it is a lot more complicated.
Broadly speaking the reasons area: 1. Ill-Health. A change in the health of the family, an accident, serious illness or anything similar can so adversely affect the finances of a family that they then begin to go into a tailspin and that can very easily lead to missed mortgage payments and foreclosure.
2. Loss of a job. This is common and it only leads to foreclosure if it is so catastrophic that it places the home owner in a new income bracket where he is unable to get another job equal in pay to the one he has lost.
3. Bad finance management. This is more serious than it may at first seem and it does not reflect just on the home owner. Quite a few home owners took advantage of adjustable rate mortgages (ARMs) which allowed them to buy a home and borrow money at very advantageous rates which, however, after six months or a year began to sky rocket and the rest is history. Here the fault often lies with lenders who make it difficult for borrowers to understand what they are getting into and, which, have over the past year been found guilty of using high-pressure tactics to sell mortgages at any costs.
These three reasons, collectively account for more than 90% of the foreclosure cases that we see come into the market.
It is evident from them that foreclosures are never a cut and dried affair of someone being unable to make payments and left to themselves, they never really manage to get out of this morass. It is exactly at this point that the savvy real estate investor steps in and acts as a catalyst in a situation that often finds him creating a win-win scenario for everybody and that is what is satisfying about being involved in the foreclosure market.