The Foreclosure Problem Deepens

The value of homes will continue to drop. At least that is the conclusion from two studies reviewed by the Wall Street Journal. The reports are from John Burns Real Estate Consulting and S&P.

“The John Burns study estimates that five million houses and condominiums on which mortgages are now delinquent will go through foreclosure or related procedures that put them on the market over the next few years. That would represent the bulk of the estimated 7.7 million households behind on their mortgage payments, the paper says.Both studies are further proof that unemployment and a credit crunch are still bedeviling consumers. Many people may not longer be able to pay their mortgages. In other cases, mortgages are so far “underwater” that home owners have no financial incentive to stay in their houses. There is at least anecdotal evidence that more people are turning the keys to their homes into lenders and walking away. Better to have a bad credit rating for a time than to live in a home which will never yield any equity.

The news also points to the problems which are likely to undermine the government’s $75 billion program to keep people in their homes with monthly mortgage payment reductions. Government figures show that many of these mortgages fall back into default withing 90 days of modification. The homeowners who get the benefit either cannot afford the new, lower payments, or they become discouraged as the value of their houses continues to drop.

Falling home values, unemployment, and despair that the economy will not improve soon, at least for the average person, will keep housing prices moving down for the rest of the year, and perhaps beyond.

Douglas A. McIntyre