Housing Market? Could It Get Any Worse?

Foreclosures up 50% in July compared to 2007

August 14, 2008
By: Scott Janke - Real Estate Mortgages

Don't ever say things could be worse, because just when you do - sure enough! That seems to be the case with the housing market. This week it was reported that the number of homeowners in trouble due to the dramatic decline in home prices grew substantially. Foreclosure fillings were up by more than 50 percent in July compared with the same month a year ago.


Realty Trac, an Irvine, California-based company which monitors default notices, auction sales and bank repossessions said that more than 272,000 homes received at least one foreclosure-related notice in July. More than 77,000 properties were repossessed by lenders nationwide in July, according to the company.

The problem, of course, is a combination of weak housing sales, falling home values and tighter lending criteria. Add to this a slowing economy and financially strapped homeowners are left with few options to avoid foreclosure. This in turn is causing a significant pileup of foreclosed properties on the books of banks and mortgaged investors.

As reported in an earlier column, the government hopes to help alleviate the crisis with new legislation signed last month by president Bush that aims to prevent foreclosures by allowing homeowners to swap their mortgages for more affordable loans, but only if their lender agrees to take a loss on the initial loan. The bill is projected to help about 400,000 households. To what extent the legislation will stem the housing crisis is difficult to predict.

It is equally difficult to predict when the housing crisis will bottom out. Alan Greenspan, the former Federal Reserve Chairman, said this week he expects that housing prices, a key factor in the outlook for the economy and the financial markets, will begin to stabilize or touch bottom in the first half of 2009. He explained that this matters not only to homeowners, but is a necessary condition for an end to the current global financial crisis.

Mr. Greenspan said "stable home prices will clarify the level of equity in homes, the ultimate collateral support for much of the financial world's mortgage-backed securities. We won't really know the market value of the asset side of the ban king system's balance sheet - and hence bank's capital - until then."

Although the supply of homes for sale remains high by historical standards, there are signs the glut is easing slightly. A recent Wall Street Journal survey of housing data in 28 major metropolitan areas showed that the supply of homes listed for sale declined from a year earlier. If that trend continues, it will signal an eventual rebound. One thing keeping home prices depressed is the tendency that potential buyers have to wait, anticipating an even further reduction in prices.

Perhaps once money on the sidelines that is waiting for a bottom starts to flow into the market, a recovery will happen sooner than later.