March U.S. foreclosures jump 57% as more homeowners walk away

Filed under: Bad news, Housing, Recession

Home foreclosures in the United States rocketed 57% in March 2008 compared to a year ago, as more homeowners relinquished their homes to lenders, according to data compiled by RealtyTrac.

More than 234,000 properties were in some stage of foreclosure - - roughly 1 in 538 U.S. households, RealtyTrac announced Tuesday.

Nevada, California, and Florida had the highest foreclosure rates, while Vermont, North Dakota, and South Dakota had the lowest.

Handing back the keys

Economist Glen Langan said Tuesday he’s not surprised that RealtyTrac indicated that the large foreclosure increase showed that many homeowners were simply walking away from homes worth substantially less than the mortgage and deeding the home back to the lender.

“If you can’t refinance — and in many cases today with more-rigorous mortgage requirements, you can’t — a home sale probably doesn’t make much sense,” Langan said. “If it’s a $20,000 gap, a mortgage of $400,000 and a house value of $380,000, you probably sell, or search harder to find a lender who will refinance the note.”

“But if you hold a mortgage for $400,000 and the house is now worth $200,000 or $175,000 or even less, it makes makes very little sense to sell, so you simply hand the deed and keys back to the lender, and say ‘It’s yours,’ ” Langan said. “And that’s what a lot of homeowners are doing now.”

However, Langan underscore that ‘handing back the keys’ is not without it downside. Doing so will still lower a borrower’s credit rating, although Langan admits “that’s probably at the bottom of concerns for many homeowners about to give up their homes.” Also, the rising foreclosures will add large amounts of inventory to an already oversupplied housing market, depressing home prices for a longer period of time.
Rising home inventories

The U.S unsold home inventory is now about 9.5-10 months, at current selling rates, depending on the home inventory methodology used, Langan said. A normal, or health housing market has about a 3-4 month supply.

The alarming increase in home foreclosures “will keep home prices depressed for at least a quarter or two,” Langan said, hurting new home construction, and a host of other lateral sectors that depending on house sales and construction.

“And that will delay the U.S economic recovery. Given the rate of foreclosures we’re seeing now, its hard to see the economy starting to grow in Q3,” Langan said. “The growth engine just isn’t there right now.”

Share This

This entry was posted on Thursday, April 24th, 2008 at 6:10 am and is filed under Real Estate and Housing. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.