Uneven Impact of the Foreclosure Crisis
The foreclosure crisis has had an uneven impact on the nation. Almost 60 percent of those homeowners whose homes are now valued less than their mortgage are from 6 states. In Nevada, the percentage of these homeowners is almost half. Similar homeowners in California, Florida, Arizona, Michigan and Georgia together constitute almost 60 percent of such “underwater” homeowners.
In the country as a whole, about 20 percent of homeowners with a mortgage find their properties valued less than their mortgage. By excluding the above mentioned states, the figure drops to 10 percent. This data has been released by First American CoreLogic.
This uneven impact of foreclosures makes the work of crisis management even more complex. Home prices throughout the country have gone down by about 20 percent, compared to the mid-2006 figures. Prices are expected to go down 40 percent from the peak. This will leave 40 percent homeowners underwater, says Nouriel Roubini, professor of economics at New York University.
Roubini, known for his pessimistic but accurate predictions, did not forecast when the crisis would level. Another gloomy analyst is Desmond Lachman, American Enterprise Institute. Lachman said, “unless there’s government intervention on a big scale … we’re really not going to bottom”.
Far-flung suburban neighbourhoods have been flooded with new homes. Buyers here have put down very small down payments, if at all any. This has aggravated the problem, says chief economist for CoreLogic, Mark Fleming.
Foreclosure will claim the property of some borrowers, while others will continue to make their mortgage payments, hoping for values to recover. Whether the government will be able to help underwater borrowers remains unclear.
There have been reports that the government is drawing up an agreement to save about 3 million homeowners from repo house. These reports were however dispelled by Dana Perion, White House press secretary. Although several ideas are being discussed, Perion said that no announcement would be made just now. Federal Deposit Insurance Corp. is expected to run the plan to limit damage from the foreclosure crisis.
However, signs of the foreclosure crisis coming out of the woods are visible. Home sales have stabilized. Bargain properties in Las Vegas, Southern California and other places have been snapped up. New foreclosures are expected to taper off by mid-2009. According to Thomas Zimmerman, UBS mortgage securities analyst, “the really sever part of this collapse in the housing market may be behind us”.
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