“Once again this quarter, the rate of foreclosure starts and the percent of loans in the process of foreclosure are the highest recorded since 1979.”
Mortgage Bankers Association
Here are the Grim Statistics
- The delinquency rate on residential properties was 6.35%.
- The percentage of loans in the foreclosure process was 2.47%.
- Loans with foreclosure actions started this quarter were 0.99%.
- The number of homes in foreclosure is around 1.1 Million
The Vicious Cycle of Foreclosure
Unfortunately, the foreclosures contribute to a breakdown in property values, as the market is flooded with vacant properties that must be sold. This drop in property values then causes more foreclosures as delinquent homeowners realize that they owe significantly more than their houses are worth. The temptation to just walk away increases as it becomes obvious that it is impossible to sell a house at market value in this environment. Soon, desperate For Sale signs plague the neighborhood and continue the cycle.
The Haves and Have-Nots
Surprisingly, even in this disastrous environment, most homeowners are just doing fine. Those with good jobs and good loans aren’t in much danger of defaulting. Unfortunately, for people in the mortgage, real estate, housing or construction industries, it’s going to be a bumpy ride. And, for people with adjustable-rate mortgages, the situation is getting desperate. Subprime ARMs represent only 6% of outstanding loans, but 39% of the foreclosures.
The Bottom Line
The bottom line is that opportunity is knocking for those who are thinking of buying a house or a rental property. These conditions are ideal for buyers and they won’t last forever. Even if you think you can’t buy a house right now, you may be able to buy a foreclosure property. Just don’t be like the previous owners and get in over your head. And, for god’s sakes, get a fixed loan if at all possible. Inflation is on the rise and interest rates are definitely going to have to be raised. They may need to be raised a couple of percent.