As unemployment and business failures have undermined their abilities to meet mortgage payments, hundreds of thousands of Americans have been confronted with the loss of their homes. This crisis has been already of such long duration that it is only natural to eagerly seek out any signs that we are now over the worst – but the critical question is where the balance lies between economic reality and wishful thinking.
The reluctant real estate agents
While banks have traditionally been prime sources of funding for home purchases, rising unemployment and the associated huge increase in foreclosures have brought the banks, albeit unwillingly, into the market as major property sellers.
Contrary to some popular perceptions, banks take no delight in executing foreclosures on the properties of delinquent lenders. The bank would far rather recover their loan instead of taking over your home. The costs of maintaining properties, and paying local taxes, are just a few examples of the hidden costs of retaining homes in the banks’ possession for long periods. For these reasons banks have been happy to cooperate with schemes to avoid foreclosures and to sell off properties as quickly as possible after foreclosures are executed.
Many banks are now advertising on their Internet sites properties they acquired through foreclosures. For example, the Synovus Bank of Columbus, Georgia, currently has a list of 115 properties on offer across the Southeast with prices ranging from $10,000 to $3,500,000. While the number of foreclosures continues to climb, some analysts contend that the pace is slowing down and there are clear indications of some recovery in the housing market.
Holding back the Foreclosure Tsunami
There were almost a third more foreclosures in July 2009 compared with a year earlier with California, Nevada and Arizona topping the economic disaster zone list. Some estimates expect more than a million American homes to be in bank ownership by the end of 2009, compared with just over 100,000 in 2007. Nevertheless, some experts detect signs of a decrease in the pace of foreclosures and this can probably be linked to US government pressures on the banks to arrange loan modifications with defaulting borrowers rather than pursuing the foreclosure option. However, with unemployment still climbing the ability of borrowers to meet even more favorable mortgage terms is limited and so there are real grounds for fearing that government intervention has only succeeded in temporarily holding back the foreclosure tide.
Signs of recovery in the housing market
Just as the poetically inclined excitedly awaits the first flower of spring, the victims of the American recession eagerly await the first signs of recovery. Over recent months there have been encouraging indications of an improvement in the housing market. In May the S&P/Case-Shiller index (based on house prices in twenty cities) rose for the first time in almost three years. Sales of existing homes have been increasing throughout the summer months, and there are reports of an increase in orders for home builders, for example, Toll Brothers, the well-known American builder of luxury homes announced that for the first time in four years their number of new orders has exceeded the number of cancellations. The revival is however more focused on the cheaper end of the market with the dramatic fall in home prices triggering a rise in demand. Opinions about the reality and enduring power of this recovery are divided. So long as unemployment continues to climb – and it is expected to exceed 10% in the coming year – expectation of a turn for the better are likely to remain premature.
Looking for a silver lining
Future trends in bank-initiated foreclosures and the broader housing market are integrally linked with the wellbeing of the general economy and in particular the employment market. The variety of forecasts in circulation only serves to indicate the large number of variables that need to be taken into the equation. For example:
- How many properties stand on the edge of foreclosure? Under government pressure and in consideration of their own commercial interest banks have been holding back on some foreclosures but significant numbers of homes remain tottering on the edge.
- Are the banks going to release many more foreclosed homes onto the market? Some estimate that there are as many as 600,000 foreclosed homes the banks have not yet put up for sale.
- The future course of the foreclosure-prevention programs launched by President Obama’s administration and various state governments is another important unknown.