Slight Respite But High Foreclosure Rates Are Here To Stay

October 30th, 2007

Though foreclosures have taken a month off, and declined slightly in September, things are not looking too rosy for the coming year which is going to see further resets of interest rates, and a whole new bunch of candidates ripe for the picking next year.

This scorching rate of foreclosures has been smoked by a tirade of ARM resets that take place after two or three years, which tend to cause a sharp increase in the monthly payments after a first low “teaser” interest rate expires, according to the loan tenure. According to data released by Credit Suisse, these resets are expected to fall in the next few months.

So, should we start feeling happy? Well, not really. A newer batch of loans are scheduled to begin resetting in the coming year, threatening to bring about a new set of candidates facing monthly payment increases, which could easily overwhelm their household budgets, causing many more foreclosures, and further delaying the recovery of the housing sector.

This Wednesday, a real estate trade group said that sales of homes are likely to fall much more sharply than anticipated later in the year. In a forecast which was revised downwards for the eight consecutive time, the National Association of Realtors said that they expected sales of existing homes to fall by around 11% this year as compared to last year. This is the worst year in a decade for sales of new homes.

As the real estate sector faces its steepest fall in 16 years, existing real estate prices are anticipated to decline by 1.3 percent more by the end of the year to a median value of $210,200.

Many local conditions are masked by these national statistics. In a few markets, the speed of sales and prices has managed to hold up quite well. A few areas which had the highest price run-ups in the real estate sector boom are getting affected the most. On Wednesday a California Realtors group predicted that sales and prices of homes are going to fall further in the coming year, because the inventory of the unsold and foreclosed houses will rise as buyers will continue to wait in hope for higher prices. Sales are likely to decline by 9% to 334,500 units statewide; and the median price for a home is expected to fall 4% to $553,000.

Private forecasters have been quoted as saying that a drop in prices can be even steeper. Senior economist at the Center for Continuing Study of the California Economy, Stephen Levy feels that prices may drop 10% to 15% overall, with a possibility of sharper declines in a few markets.