Foreclosure forecast: Blizzard brewing
Las Vegas and Florida, on the other hand, are seeing foreclosures
as a result of speculative markets gone wrong, Sharga says.
had a lot of people buying speculatively without knowing what they were doing,"
he says. "Investors were buying homes at full price hoping to get their money
back after a quick resale. But when the market flattened, those people got in
One state in the Deep South found itself in
another unique situation.
"In Georgia, we saw an unusual
amount of mortgage fraud," he says. "That is where rings of people,
including appraisers and agents, artificially inflate a house and get it sold.
Then when the new homeowners tried refinancing, they found their home wasn't worth
what they thought it was."
And while it may seem logical
that other Gulf Coast communities might be suffering through foreclosures caused
by hurricane-related hardships, Mississippi and Louisiana actually posted modest
foreclosure numbers in 2006.
Sharga attributes that lack
of foreclosures to state-imposed moratoriums forbidding foreclosures in the immediate
aftermath of Hurricane Katrina, coupled with a surprising willingness of banks
to work out troubles rather than take back homes.
really motivated those banks to not call those mortgages," Sharga says. "The
lenders just weren't in a hurry to take possession of a home that might or might
not now be worthless."
Sharga expects to see the
next wave of foreclosures in areas such as the Midwest where automakers and other
employers are laying off large swaths of workers.
are watching closely in places like the Rust Belt because of layoffs and layoff
concerns," he says. "What we expect we might see is an 'Am I next?'
syndrome, where buyers stay on the sideline because they aren't sure if their
jobs are secure."
The indicator that will most likely
signal an end to the foreclosure storm is a decreased number of homes for sale
on the market.
"As you read stories about the inventory
of homes being consumed, it will have a positive effect on foreclosures,"
Sharga says. "As inventory comes down, it will reduce the amount of time
it takes to sell the house, and that will help keep properties out of the foreclosure
But even with such dire statistics, Sharga
stresses that the foreclosure number merely shows total filings, and not necessarily
total number of homes banks have taken back from homeowners. That's because oftentimes
when a bank begins the foreclosure process and sends a home to auction, bargain
hunters snatch up the newly discounted home.
what we are seeing in California," Sharga says. "They have almost no
bank-owed properties despite relatively high foreclosure numbers."
Sharga suspects people who were forced out of the market as prices started to
climb are now jumping at the house that they were looking at, but are now able
to buy at a discount.
Regardless of what causes the foreclosure,
when people snatch up properties at a discount, it has the potential to depress
the rest of the housing market. As that pushes prices down, other homeowners may
also find themselves in a tough financial situation with few good options available.
Giusti is a freelance writer based in New Orleans.