Foreclosures to Rise in the Next Two Years

Posted on July 14, 2009
Filed Under Foreclosure Homes | Leave a Comment

JP Morgan & Chase analysts observe that foreclosures in the US will increase in the next two years. They will probably touch 6.4 million around 2011. However, if loans are not reworked to help borrowers, the number would rise by another 2.5 million.

The decline in home prices will be arrested slightly. Instead of crashing by 41 per cent, the prices will probably drop by 39 per cent. Lenders have stepped up efforts to modify loans. This is expected to bring down the number of foreclosures and pump fresh blood into the housing industry. The Obama administration’s program of making homes affordable to owners will have little effect if job losses are not stalled. The rising unemployment has placed even the prime mortgage borrowers in the risk zone.

House prices have fallen in 20 cities by 32 per cent. The prices had reached the zenith in July 2006. Coupled with this, the unemployment level has also peaked to a 25-year high to scale 9.4 per cent in May.

Foreclosures also nearly doubled since the 2007 figure. While last year, there was a total of 861,664 foreclosures, in 2008, the number of foreclosures was only 404,849 two years ago. Till April this year, the number of foreclosures stood at 276,526. As the number of foreclosures rise, the stock of foreclosed properties will rise to about 2 million in mid 2010. If there are no loan modifications, then the inventory of foreclosed homes would rise to 3 million.

The analysts assumed that only 50 per cent of borrowers may qualify for the modified home loan package. At present, there are about 4 million US homes that are up for sale. About 700,000 of them are “distressed” foreclosed properties. Housing experts agree that there will be an additional 3.2 million distressed properties hitting the market within two years.

So far, the stock of foreclosed homes in the market has not increased because there was a moratorium on imposing foreclosure filings. But now the ban has been lifted. Hence, the market is being inundated with foreclosed properties. It also remains to be seen how far the stimulus package impacts borrowers. Still, by middle of next year about 1 million homes will hit the market. By then, the condition of buyers would have improved, many of whom will want to invest in property. But the surfeit of homes will still push down prices and make it difficult for the housing market to stage a recovery.

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