Negative Impact Of Foreclosure On Housing Market

February 19th, 2008

The volume of home sales has grown due to the rise in the volume of foreclosures. Almost 50 percent of home sales in parts of the state of California are from houses that have been foreclosed. According to the data given out by an Associated Press comparison of the sales of 2007, this phenomenon is seen mostly in Colorado, Michigan, Nevada and Tennessee and it has been seen in a slightly lesser rate in Georgia, Arizona, Ohio and Florida.

The rising volume of sales of foreclosed homes is mainly due to the terrible condition of the real estate market which is becoming more and more worse. Those homeowners who do not have a deadline to sell their properties are taking their properties off from the market and as a result the foreclosed properties are being sold off at fire sale rates. This is making the local tax revenues and property values suffer and this is happening mostly in neighborhoods where there is a huge number of minority residents who have very weak lending standards.

To bring the situation under control, the Bush Administration, together with lenders like, Bank of America Corp, Citigroup Inc, etc devised a plan to give borrowers an extension of 30 days during which the process of foreclosure would be paused and lenders would have time to work out a new repayment plan, where the mortgage would be more reasonable. An analysis of the foreclosure rate was undertaken and the observation was that the foreclosure rate was highest in areas where the standards of lending were very loose or where the economy was very weak. Places like Maine, Kansas and New Mexico showed foreclosure sales which were under 2 percent of the total number of sales.

Previously, the real estate market in places like Nevada and California were booming and since during those boom years the borrowers were allowed houses which they could not afford, now the number of defaults was increasing. Walter Molony, spokesman of the National Association of Realtors said that to tackle the problem, the Association would informally survey the issue and release the findings sometime later during the month. Experts declare that the data which is available does not give a complete picture. This is mainly because all foreclosure sales are not recorded by the Realtors group as they are auctioned off and are thus not found in the regional database files.