Housing Bubble: Foreclosures up 57%, Mostly Non-Bubble States
Submitted by
CalculatedRisk on Wed, 04/06/2005 - 8:30pm (18 comments)
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When one sector sees many bankruptcies, this can be harbinger of economic woe, when the entire system of a civilization is up to the eyeballs in debt and running continually in the red on every possible level, this is meltdown territory.
We asked for this, we get this. After 9/11, instead of concentrating on loosening the dependence on foreign oil, we increased it. Instead of preparing to fix the imbalances due to energy choices, we aggravated this. Instead of changing direction, Cheney and Bush yelled, "this is the American way of life, full steam ahead".
We are seriously doomed. People hate hearing this. But here it is. Are you ready for what is coming? Think about this. I practice what I preach.
This is a trailing phenomena too:
"Lenders typically don't declare a loan in default until payments are 90 days overdue, Houston said, 'and it's probably six months before they get the paperwork together to actually foreclose.'"
So what is now popping up in the property records began with a borrower's default six to nine months ago.
"Non-mortgage debt may help explain the troubling trend, he said. Most consumers opt for fixed-rate mortgages and thus are immune to rising interest rates, (Marquette University economist David E.) Clark noted. But their credit cards and home equity lines of credit carry variable interest rates - rates that have climbed in recent weeks."
If credit card/line of credit interest rate hikes began to tip these folks back then, just wait until the rate increases on ARMs kick in.
I get the feeling quite a few folks in the 25 to 35 age cohort will be learning about budgetary discipline the hard way. A new generation of fiscal conservatives?
knobboy: When asking people at work and elsewhere about their ARMs, I heard generally two responses:
Perhaps not quite unrelated to the subject, gas stations in these parts ("Silicon Valley") show pump prices starting around 2.55-2.60 for the lowest grade. One outlier in a nonresidential area that is consistently more expensive presumably because of some reimbursed-business-traveler effect shows 2.959 for the highest-grade gas. I wonder when they dare break the $3 mark.
It makes perfect sense: The areas with the greatest home price appreciation (so-called bubble areas) are the regions with the strongest economic growth. That means plentiful and good paying jobs, and more potential buyers competiting to purchase a house.
The areas without a big run up in home prices -- despite rates hitting a 40 year low -- must be economically stagnant. Prices are not going higher because the region is not experiencing much in the way of growth.
Lots of foreclosures, weak growth means poor job availability and no income growth. The extreme examples lead to foreclosures . . .
The Big Bubble Bay Area didn't quit losing jobs until Jan this year.
cm:
Ain't that the truth!! How about this one:
"When the price goes up, I'm gonna cash out my equity and ."
"What if the price goes down?"
"Oh, that will never happen!"
Poor red states. Vote family values, get foreclosure. Of course, if we had a real two party system, we might have a real choice on whom to vote for. All we have now is corporate party 1 and corporate party 2.
Barry: Sure, those things feed on each other.
ken: Yes, but by all appearances there is still enough "money in the market", at least as long as the easy credit spigot is open. During .com times, often enough new hires couldn't find places to live, and had to stay in hotels or extended (?) corporate housing. Some time ago we had a wave of people moving to cheaper rentals. Maybe that freed up house capacity for sale. Of late we have been seeing increased rental vacancies.
But about everybody is mystified. The usual rationalization is, there will be always more demand to live in this area than housing supply. Admittedly the nice geography and climate commands a lot of attraction.
And the job picture may overall look better than we can make out.
People in trouble in the NE and W don't walk away from properties. They sell them for a profit. The places that go belly up are places where the potential sales price is lower than the mortgage.
A depression is when all the properties are below the price bought and a real nasty grinding depression happens when more than 50% of the people who owe banks are sitting on properties that are worth less than the remaining principal of the loan. And boy, this describes more than 50% of today's home "owners" who are actually bank tenants. Thus the bankruptcy bill passing in the dark of the night. The banks are anticipating a big melt down and want to recoup before it gets too bad.
Elaine: The big difference between owning a property with a lien on it, or being a tenant on it, is who is stuck with any problems on the property (toxin cleanups, sewage problems, etc.). It's the entity holding title.
But of course that won't affect your point.
Yeah, you get it coming and going!
People who can't pay their own bills are unlikely to be enthusiastic about insisting that the government pays its own. Another way to starve the beast.
If they're doing it on purpose, they get points for cleverness...
Elaine, thanks for the nice comments. I think talking "depression" is getting a little ahead of ourselves. I agree that a recession (or at least a significant slowdown) is likely.
In the UK housing stall, foreclosure rates were not often newsworthy. [Nor housing starts] But house prices and mortgage volumes were. The foreclosure rate being up 57% is a tad melodramatic in characterizing the present housing market. Not to say that this is number is not useful, but there are others.
The fact that it gets to Yahoo Finance is more important than the content and the relatively small audience of foreclosure.com IMHO.
My mains source of income has been real estate investments. I have tracked interest rates and housing values since I was 19 and got my first property.
It has been with undisguised alarm watching the present rise in housing values. This isn't due to America suddenly becoming richer and richer! Except for the very top..ahem.
This is classic "Tulip mania" at work. And when it breaks, the break will be very nasty.
Much of the speculation is from people using banks to fund the speculation. Trump goes bankrupt over and over again and keeps on rolling because he can still use part of his empire to go into debt. HE ISN'T REALLY RICH AT ALL.
I had many a fellow friend/investor who got lured into too many risky schemes and went bankrupt. I never did this.
How did I avoid this?
Never did my stake in a property be less than 50%! I could take a big hit and stay above water.
Depression?? Huh??
Elaine are you saying that 50% of home owners now owe more than their homes are worth??
I think that the bankruptcy bill was passed to maximize $$$ coming into the credit card companies. Pure and simple about extracting maximum profit. They've been working on it for over a decade and it finally got through.
But I don't agree with your characterization that banks/lenders think that there's an ensuing depression coming so they have to extract the most from the American public.