The foreclosure crisis continues unabated in the United States, as a widening gyre of negative equity and declining property values continues to drag down the housing market and the broader economy. According to a Bloomberg article by Kathleen Howley, a record number of U.S. homes with mortgages were in foreclosure at the end of 2010.
An unbelievable 4.63 percent of mortgage loans were in foreclosure in the fourth quarter of 2010, up from 4.39 percent in the third quarter according to new data from the Mortgage Bankers Association. Loans that are in foreclosure or delinquent comprise 14 percent of all mortgages. That is truly abysmal.
Foreclosures hit a new record despite the fact that many major lenders enacted foreclosure moratoriums at the end of the year in response to the robo-signing foreclosure crisis. These same banks have resumed foreclosures. As a result of the moratoriums, home seizures were down 32 percent in the fourth quarter as lenders waited until the robo-signing issues were “resolved” to move forward. Expect to see record numbers of people evicted from their homes in 2011 as the backlog is cleared.
There is a massive supply of unsold homes in this country, which is likely growing due to record numbers of foreclosures and home seizures. At the same time, there is a distinct lack of demand for these homes due to unemployment that has been above 9 percent for close to two years. It doesn’t appear likely that the country is on the verge of massive job creation, either.
Home prices are falling broadly, and have been doing so for several months. A recent New York Times article by David Streitfeld showed that home price declines have moved to markets that were formerly thought to be well insulated from price declines, such as Seattle, Minneapolis, San Francisco, and Dallas. The S&P/Case-Shiller Home Price Index found that prices are continuing to weaken, and that a double-dip in prices could be confirmed by the spring. Earlier this month research from CoreLogic found that home prices were down for the fifth consecutive month. Many analysts predict that home values will deteriorate by another 5-10% this year.
Further price declines guarantee that we’re not likely to see a drop in foreclosures any time soon. A recent Zillow survey found that 27% (!) of homeowners with mortgages are underwater. Another 25% of homeowners have between 0-5% equity in their homes. Negative equity (along with loss of income) is one of the major drivers of foreclosure. Foreclosures further diminish property values.
Sooner or later, something is going to snap the housing sector out of its downward spiral (I hope). Things are falling apart. The center cannot hold.