Homeowners Still Hurting
Maurna Desmond and Camilla Webster, 12.05.08, 01:50 PM EST
Home losses are stabilizing, but owners are still struggling to make payments.
The good news is fewer Americans are losing their homes. The bad news is fewer are making their payments.
The Mortgage Bankers Association said Friday that third-quarter foreclosures in the United States had stayed level since the second quarter, despite a rise in the rate of delinquent mortgages to 7.0%. This marked a 0.6% rise from the previous quarter and a 1.4% increase year-over-year. The trade organization cited the deteriorating economy as a growing factor in loan performance.
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Equities swooned off the day's dour news from the housing and job fronts. The Dow lost 1.5%, or 121 points, to 8,254; the S&P 500 fell 1.5%, or 12.5 points, to 832; and the Nasdaq tumbled 1.1%, or 16 points, to 1,429 during midday trading. Bonds rallied, as investors fled to safe-haven government debt. The yield on the benchmark 10-year Treasury rose to 2.59%, from 2.55% late Thursday. The return on the two-year note also increased, to 0.86, from 0.82.
Foreclosures have become an epidemic in the U.S. as the toxic combination of falling home values, tighter mortgage lending and a weakening economy has left thousands of distressed homeowners with limited choices. Many, who either can’t afford their increased payments or owe more than the home is worth, can't refinance into an affordable loan, partly because the global credit crunch has made mortgage funding scarce.
Although it would appear foreclosures are leveling off, MBA chief economist Jay Brinkmann said this belied market fundamentals and was in fact reflective of several factors--one being the decision of some lenders to cease foreclosure starts across the board. The reality is that although 20 states showed declines in the rate of foreclosure starts between the second and third quarters, every state showed an increase in the 90 days or more delinquent category with the exception of Alaska.
With the combined 575,000 foreclosure actions started in the last quarter, and an estimated 580,000 in the second quarter and 535,000 in the first quarter, the U.S. is expected to have experienced 2.2 million foreclosures during 2008. Brinkmann said: "Absent a recession, the 2009 number would likely have fallen by several hundred thousand, but the effects of job losses and general economic deterioration make the 2009 outlook worse, particularly if mortgage problems become more widespread.”
"We have not gone into past recessions with the housing market as weak as it is now," added Brinkmann, "so it is likely that a much higher percentage of delinquencies caused by job losses will go to foreclosure than we have seen in the past."
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Washington has been trying a swathe of different tactics to shore up the troubled U.S. housing market. Most recently, there has been a push to lower the borrowing rate to levels never before seen.
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D. Kenneth Patton, Divisional Dean of the NYU Schack Institute of Real Estate, told Forbes.com on Nov. 13 that if the government were to subsidize mortgages, even more than it currently does, it could bring the borrowing rate on new loans to 4.5%. This would be the lowest interest rate on record for 30-year, home-loan debt. In theory, it would also spark a rush of homebuying for those waiting for a reason to jump into the market. (See "Chorus Of Business Leaders Propose A 4.5% Interest Rate To Stabilize Housing Market.")
Americans can expect a further increase in foreclosures as U.S. employment troubles mount. The Labor Department reported Friday that U.S. nonfarm payroll employment fell sharply in November, with 533,000 jobs lost. This was much higher than the 350,000 estimated. The unemployment rate rose to a slightly lower than forecast 6.7%, from an unrevised October figure of 6.5%.
Joel Naroff, president of Naroff Advisers, said, "In November, firms gave up trying to hold on to their workers and instead started concentrating on surviving the recession." He predicted an unemployment rate of 8.0% unless people simply stopped looking for work, which would artificially keep the rate down. Naroffi said the Fed was likely to cut its target rates below 1.0% on December 16, but admitted it "would not do a whole lot."
Since the start of the recession in December 2007, as recently announced by the National Bureau of Economic Research (see “Congratulations, It's A Recession”), the number of unemployed persons increased by 2.7 million, and the unemployment rate rose by 1.7 percentage points with two-thirds of these losses sustained in the last 3 months. |
