Housing Deflation Easing

suburban house By Mike Colpitts

The rapid decline of housing prices is easing in many of the worst hit markets with slower housing deflation, according to a study of the most severely affected markets by Housing Predictor. The impact may lead to improving conditions and could soon signal a bottom to the market in some areas of the country. But there are a bevy of mixed signals.

Only six states account for the largest majority of foreclosure notices, according to Realty Trac, which are regarded as the worst affected areas in the real estate crash: California, Florida, Arizona, Nevada, Illinois and Michigan. The study found that 72% of the states markets studied have seen slower deflation or increases in home values.

All six states were heavily targeted by national mortgage lenders during the real estate boom, including many lenders that are now out of business. The over-whelming majority of foreclosures taking place are now from either Option Arm mortgages or conventional loans made during the peak of the boom.

Nevada and California account for the highest number of foreclosures followed by Arizona. Twenty-seven percent of all foreclosure notices made in the third quarter were issued in California.

Short sales in which banks cooperate to reduce the principal owed on a property to sell it to a new buyer are becoming more popular after the Obama administration pushed bankers to cooperate in exchange for receiving billions of dollars from the federal government. But bankers are still excessively slow in responding to buyers offers to purchase property, awaiting additional government financial assistance.

The first time buyer federal $8,000 tax credit has also acted to improve sales in lower price ranges, but has yet to make a dent in higher ranges. After four years of falling home prices in the harshest impacted areas of the country, conditions are finally beginning to improve. But whether the inroads made so far will last moving into the final quarter of the year, seasonally a slower time for housing sales, is a lingering question.

Strategic foreclosures are increasing. Strategic foreclosures occur when homeowners who have lost so much equity in their property decide to stop making mortgage payments and walk-away from the mortgage. A recent Housing Predictor survey determined that 32% polled said they would walk away from their mortgage if housing prices continue to decline. The movement could lead to an astounding number of foreclosures, topping 25-million properties before the foreclosure epidemic is finally over and trigger the worst financial crisis the U.S. has experienced.

It seems unfathomable to imagine. But it also seemed unimaginable to consider just weeks ago that it could be possible for a foreclosure notice to be filed against a property every ten seconds, the rate at which notices are being filed today.

The Obama administration and Congress are embroiled in the healthcare debate, which makes daily headlines, while millions of homeowners are being foreclosed in the worst financial crisis since at least the Great Depression. Critics are now arguing the financial crisis in housing alone is the worst in U.S. history.

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