Blog
EconomicsNo end in sight for foreclosures
CNN recently reported that as many as seven million homes may end up in foreclosure proceedings. RealtyTrac noted that the third quarter of 2009 was the “worst three months of all time,” when nearly a million homeowners received foreclosure letters. This figure represents an increase of five percent over the previous quarter and a 23-percent increase over a year ago. The current level of foreclosure proceedings is equivalent to one in every 136 U.S.  households and the discouraging conclusion is that there is no end in sight.
Repossessions by lenders are increasing in all but two states. Federal government efforts such as the Making Homes Affordable program have been slow to work and have led to delays in lender actions, causing further backlogs. The Treasury Department program to modify mortgages for qualified borrowers has been cumbersome at best and is quite limited in scope given the number of borrowers in trouble. The Obama Administration has made several changes to the program to enable it to work a bit better, yet only a fraction of those seeking to modify their debt positions are proceeding.
In fact, “strategic defaults” (i.e., household decisions to stop paying their mortgages while remaining current on other bills) is up over 128 percent, according to one study. These defaulters are said to represent 4 percent of the homeowners whose mortgage balances exceed their property values. The current situation leads to further predictions of zero or negative value changes for many years to come.
What does all of this mean for Pennsylvania’s housing markets? Here are some observations and a few predictions:
1. While Pennsylvania has been in the bottom third of foreclosure states (typically, 30th to 32nd in the RealtyTrac data), a rising foreclosure trend has begun in the Commonwealth.
2. Originally, the rise in national foreclosures stemmed from sub-prime defaults. Now, it is more likely to be due to rising unemployment coupled with declining property values. Pennsylvanians have witnessed both of these phenomena in recent months.
3. Since Pennsylvania’s housing markets lag rather than lead national trends, it is likely that foreclosures will continue to increase in the next few months in many communities.
4. We should not expect modification programs to solve the foreclosure crisis in Pennsylvania (or elsewhere).
As Dr. Seuss once wrote, “the future lies in eggs.” The recent run-up in stock prices, a leading indicator of economic prosperity, gives pause for an optimistic future. Let’s hope for economic growth to return soon or else we will all be walking on egg shells for years to come.
|
About Austin: Austin Jaffe, Ph.D. is PAR's Consulting Economist from the Smeal College of Business at Penn State University. |
Related posts:
Print This Article
