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Foreclosure crisis overblown

aplusmnt

Well-known member
http://articles.moneycentral.msn.com/Banking/HomeFinancing/ForeclosureCrisisIsOverblown.aspx

Foreclosure 'crisis' is overblown

Sure, there are pockets of pain around the US, but it's not as if most Americans are losing their homes. More than 99% of homes aren't in foreclosure.

By Scott Burns
A recent list of year-end mortgage foreclosure rates in 100 top metropolitan areas drew a lot of attention. Released by RealtyTrac, a company that compiles data on home foreclosures, the list showed the number of foreclosure filings in each metro area, the percentage of homes being foreclosed and the percentage change from the previous year.

Though the report had some dismal news -- such as the nearly 4.9% foreclosure rate in the Stockton, Calif., area -- a close look at the data also provides some reassuring information. It tells me, for instance, that the foreclosure crisis is a regional problem, not a systemic one. It could become a systemic problem, of course, but we're a long way from that now.

This news will disappoint the gloom-and-doom crew and all those seeking the excitement of financial upheaval. But it may be time to temper our worry and take a closer look at some of the year-over-year foreclosure statistics:

Though the national rate of foreclosure increased by a whopping 79% between December 2006 and December 2007, the rate was still only 1.033%. Because about 30% of all homes are owned mortgage-free, this means that for all the noise about a crisis, only seven-tenths of 1% of all homes were in foreclosure.

In the top 100 housing markets, the average foreclosure rate was somewhat higher -- 1.38% -- and it was up 78% over the previous year. But if you rank-ordered the list of the top 100 areas, only 34 had foreclosure rates above the group average. Fifty-one areas had rates of 1% or less.

Foreclosure rates actually fell in 14 of the 100 areas. More important, many of the areas with the highest increases in foreclosure rates were rising off rates that were tiny. The Bethesda, Md., area, to offer the most extreme case, saw foreclosures rise 1,288% -- to a rate of 0.682%. In other words, foreclosures there were virtually nonexistent the year before. Today they are still well below the national average. The same can be said for the Albany, N.Y., area (up 638% to 0.25%), the Baltimore area (up 544% to 0.73%) and the Providence, R.I., area (up 354% to 0.41%).

Another pattern emerges if you cross the foreclosure rates with the Office of Federal Housing Enterprise Oversight (OFHEO) index of home prices. It shows that the top 10 foreclosure areas in America are areas of extreme price change -- changes far from the national average of 46.92% over the past five years. (See the table below.)

Seven of the top 10 foreclosure areas had experienced major price spikes in the past five years. Three of the top 10 foreclosure areas had experienced price increases that were dramatically lower than the national average. That pattern continues when you examine the top 25 foreclosure areas.

The seven areas with the top price appreciation for the past five years averaged a stunning 91.6% increase, nearly double the national average. The national average, in turn, was about triple the inflation rate for the period.

Small wonder the foreclosure rate is booming as well. Anyone who bought in the past few years with a 5% or 10% down payment has a good chance of being upside down as froth comes off the market. In those areas the problem is about irrational price spikes and the hazards they bring to homeownership.

Some would call this "a Cadillac problem" -- a great problem to have, like having more boats than you have water-skiers. Though 5% of the homeowners may be losing their homes, most of the other 95% probably feel significantly richer.

How much richer? Try this. Suppose you paid three times your income for a house and it nearly doubled in value over five years. What does that mean? It means your net worth grew by nearly three years of income. Try achieving that with your 401(k) plan. Even if you bought halfway through the surge, your gain is likely to be well more than one year of income. However you cut it, the change compares quite favorably with working and saving.

The three metro areas with low price appreciations are a different matter. Homeowners in Detroit have actually lost money on their homes over the past five years. That, in turn, has limited their ability to make up for income shortfalls by borrowing against home equity. Add a shrinking job market, and places such as Detroit are coping with a perpetual surplus of sellers over buyers.

One indication is the cost of renting a U-Haul truck. It recently cost $1,447 to rent a 26-foot truck to move from Detroit to Dallas but only $521 to rent the same truck to move from Dallas to Detroit. The real economic problem, for the most people, isn't the price-spike states. It's the deflation states.
 

backhoeboogie

Well-known member
The sky isn't really falling?

But the media has pasted a doom and gloom picture of everything. They have me convinced I am the only one in America who pays my bills and not in debt up past my eyeballs.
 

Richard Doolittle

Well-known member
With the combination of low interest rates, inflating property values, and easy credit, it's been pretty easy for people to live beyond their means. When your credit card and car payments get too high to handle, you refinance your house and put your personal debts on your mortgage and start over!

Unfortunately, I think that type of stuff has been happening in agriculture also. When real estate values inflate, its easy to put all of your debt against the real estate.

They're going to have to "pay the piper" in housing and I'm afraid agriculture won't be far behind with a correction.
 

Mike

Well-known member
When the "Dot Com" bust happened back during the Clinton Admin, lots of people got scared of the stock market and transferred much of their savings over to new homes, feeling that real property would always hold and escalate it's value better.

Builders here were making a killing off home building up until last year.

When we built a house in 2003, most builders were charging $125 per sq ft. and up, homeowners didn't care as they felt that they would build equity regardless of the price.

Appraisals fell lockstep into the trap too.

Luckily we built ours ourselves and came in at just under $55.
 

TSR

Well-known member
Well aplus I hope it is just an overblown situation. Because if its not L know who is going to eventually pay for it-the working man and his children when they get big enough to work.
 

MoGal

Well-known member
Please don't take one (false) news article to heart..... the FED injected 200 Billion in the stockmarket last friday to prop it up and loaned out $280 Billion to banks the other day.......... there's 500 TRILLION in derivatives they aren't even talking about yet. Carlyle Capital leveraged 64:1 and they are toast.......

THE ONLY REASON foreclosures MAY be down is because these banks cannot prove ownership and 5 states have stopped doing foreclosures......... I mentioned that in the Leo Wanta tab and he tells you exactly how to prevent your house from being foreclosed upon.

Moneymax sent me an email last week (and I must have deleted it because I was gonna post it here) that it's gonna take banks "a while" to prove ownership............

I say we are about 5 months away from a total stockmarket collapse........... if you plan on selling cattle this year, you better do it before September 1st.

PLease read these websites and I will say reading the comments you will learn just as much as from the articles. Also search out Nourel Roubini and Asia times.....

http://elainemeinelsupkis.typepad.com/money_matters/

http://globaleconomicanalysis.blogspot.com/
 
A

Anonymous

Guest
Recession? Maybe worse.
Economy stumbles more
Expert says it could take years to recover
from financial crisis now going global


--------------------------------------------------------------------------------
Posted: March 13, 2008
3:50 pm Eastern

© 2008 WorldNetDaily


Wall Street
WASHINGTON – It was another gloomy day on the financial markets, as more economic indicators suggested America's financial crisis is deepening and spreading globally.

Chrysler told employees worldwide – not just factory workers – to take a mandatory two-week vacation in July.

The Carlyle Group announced creditors planned to seize the assets of its mortgage-bond fund after it failed to meet more than $400 million in margin calls on mortgage-backed collateral that has plunged in value.


Gold rose above $1,000 an ounce for the first time as mounting credit-market losses spurred demand for bullion as a haven from the sagging dollar and equities. Silver and platinum also advanced as the dollar dropped below 100 yen for the first time since 1995 and to a record against the euro. Gold is up 37 percent since the Federal Reserve began cutting interest rates in September, sending the dollar tumbling.


U.S. home foreclosure filings jumped 60 percent and bank seizures more than doubled in February as rates on adjustable mortgages rose and property owners were unable to sell or refinance amid falling prices.


Retail sales in the U.S. unexpectedly fell in February, indicating that declines in payrolls and home values and a surge in energy costs have pushed the economy into a recession. Sales dropped 0.6 percent, led by auto dealers and restaurants, after a 0.4 percent gain in January, the Commerce Department said. Meanwhile, the Labor Department said jobless benefits rolls climbed to a 2 1/2-year high, and import prices soared 13.6 percent from a year ago, reflecting higher energy costs.

U.S. import prices rose by a less-than-expected 0.2 percent in February as petroleum prices dipped while export prices increased by a surprisingly strong 0.9 percent as food prices soared, a government report showed today.


Global writedowns linked to the U.S. sub-prime crisis could reach $285 billion, $20 billion more than expected earlier this year, credit ratings agency Standard & Poor's said in a report published today.


The Dow and Nasdaq indexes were up slightly after a morning plunge.
Meanwhile, in the March-April edition of Foreign Policy magazine, the chairman of RGE Monitor warns that central banks cannot save the U.S. or the world from the worsening recession. Slashing interest rates is not enough, writes Nouriel Roubini, a professor of economics at New York University's Stern School of Business.

"Central banks don't have as free a hand (as they had in 2001)," he writes. "They are constrained by higher levels of inflation."

He also cautions that stimulus packages, like the one passed by Congress and signed by President Bush, will have little beneficial impact on the stalling economy.

"The United States is facing a financial crisis that goes far beyond the subprime problem into areas of economic life that the Fed simply can't reach," says Roubini. "The problems the U.S. economy faces are no longer just about having enough cash on hand; they're about insolvency, and monetary policy is ill equipped to deal with such problems."

Roubini points out the sorry details all too evident in the day's news – led by millions of households on the brink of default on mortgages.

"When the economy falls further, corporate default rates will sharply rise, leading to greater losses," he writes. "There is also a 'shadow banking system,' made up of non-bank financial institutions that borrow cash or liquid investments in the near term but lend or invest in the long term in non-liquid forms. Take money market funds, for example, which can be redeemed with just one month's notice. Many of these funds are invested and locked into risky, long-term securities. This shadow banking system is therefore subject to greater risk because, unlike banks, they don't have access to the Fed's support as the lender of last resort, cutting them off from the help monetary policy can provide."

Roubini concludes it will "take years to resolve the problems that led to this crisis."

In fact, it's hard to consider solutions when the problems seem to grow worse each day – especially in the area of mortgage foreclosures.

"With declining prices, there is a pervasive problem of not being able to refinance or sell,'' Susan Wachter, professor of real estate at the University of Pennsylvania's Wharton School in Philadelphia, told Bloomberg News. "I'm very concerned. This is continuing to worsen. It tells us that we are not at a bottom.'''

About $460 billion of adjustable-rate mortgages are scheduled to reset this year and another $420 billion will rise in 2011, according to New York-based analysts at Citigroup Inc. Homeowners faced higher payments as fourth-quarter home prices fell 8.9 percent, the biggest drop in 20 years as measured by the S&P/Case-Shiller home price index.

According to Rick Sharga, executive vice president of RealtyTrac, foreclosure filings are likely to be "explosive'' in May and June as more payments jump, after remaining at current levels this month and next. He said there may be between 750,000 and 1 million bank repossessions in 2008. '

February was the 26th consecutive month of year-on-year monthly foreclosure increases, Sharga told Bloomberg News.
 

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