Saturday, September 24, 2005

Foreclosures Coming To Hot Markets

This report by Kenneth Harney looks at foreclosures and appreciation rates. "Families in high-cost real estate markets are stretching their household budgets to the breaking point to buy even a modest home. Some families are devoting 40 percent to 50 percent of their monthly incomes just to hang on to their high-priced houses."

"Given all that gloom and doom, you'd think that homeowners' growing financial challenges would be visible in their payment performances on their mortgages. But the reverse is true: Late payments on home mortgages were actually lower in mid-2005 than they were at the same time the year before, 4.3 percent of all homeowners were at least slightly behind on their payments this year versus 4.6 percent last year."

"The highest rates of late payments, by contrast, turn out to be in states with relatively low housing costs, below-average appreciation rates and slow economic growth."

"Mississippi homeowners had the highest delinquency rate among the 50 states at mid-year (8.5 percent), followed by Louisiana (6.7 percent), Indiana (6.66 percent), Tennessee (6.32 percent), Texas (6.31 percent) and Ohio (6.13 percent). All of these states have moderate- to below-average housing costs and ranked among the slowest-appreciating markets in the country last year."

Mr. Harney fails to see this unfortunate fact; many more folks in California would be bankrupt if it wasn't for the appreciation of their house. And many will become bankrupt, subject to the new rules, when appreciation levels off or falls, as is happening now.

The economy isn't that great in the US, and artificially high home values with the attendant equity-borrowing are merely masking that fact.


At 11:08 PM, Blogger moretimethanmoney said...

This comment has been removed by a blog administrator.

At 11:30 PM, Blogger moretimethanmoney said...

9,000 bankruptcy filings a day in a report from the OC register today.

Should see more foreclosures soon.

Bankruptcy: The next chapter
Personal protection filings have jumped this month to the highest on record, averaging nearly 9,000 a day ahead of new law.

Not sure how I feel about the new law as some good people with a little bad luck could get crushed. But some very deserving people should get hurt we just need a way to sort them out.

At 5:59 PM, Blogger Chip said...

Oct. 3 - As a Southron (a very dedicated Southerner), it is easy for me to understand why the foreclosure rates in so many of our southeastern states are higher than in California. It is because there are precious few new jobs here and the new jobs that do come are disproportionately at the lower end of the income scale. So house values have not risen as they have in California and other bubble areas. This in turn means that there is no particular increase in equity from which to borrow.

While borrowing more money to stave off foreclosure is ultimately counter-productive and would never be recommended by an econ teacher, it appears to be the vehicle by which many people in bubble areas have been living beyond their means. I think that also protends far greater hurt in this crash than in the dot-com one, because people have spent so much of their equity on toys this time around.

At 6:01 PM, Blogger Chip said...

protends -- read: portends.


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