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

Posted Apr 15th 2008 12:35PM by Joseph Lazzaro
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."

Tags: banks, foreclosures, home prices, housing, housing sector, interest rates, inthenews, inventories, mortgage lenders, mortgage rates, U.S. economy

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Reader Comments (Page 1 of 1)

4-15-2008 @ 3:16PM

karen said...

Amazing so many people are just handing back the keys with no thought. If you've got a 2nd on the house they can, and sometimes will, come after you. One bad decision followed by another. Came across this company on another blog that claims to set you up with R.E. attorneys so you don't screw things up worse. www.walkawaysmart.com
No idea if they're good or not, but certainly couldn't hurt..

4-26-2008 @ 7:29AM

talal said...

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5-27-2008 @ 12:52PM

Kate said...

We live in a small community where the housing prices when through the roof. Local residents were shut out of the market, as we had a lot of bay area folks taking advantage of our inexpensive real estate. Now our small town is experiencing what other towns and cities are experiencing, the massive foreclosures. Locals had no choice but to sign risky loans to qualify for homes that were overpriced by the insurge of outsiders driving pricing up. Banks happily wrote loans for those who did not qualify, as that is how they generate their money. Those loans were then sold to other mortgage companies.

Banks and people got greedy. I didn't buy a home because I didn't feel I could afford one. Now that I'm to the point where I'd like to buy, the credit crunch is cutting me out of the loop.

The government is bailing out banks with low interest rates (tax payers money) and those banks are turning around and raising interest rates on credit cards to 30%, while sqeezing the credit market to where it's impossible for an average person to purchase a home.

I say let the banks fail. Let consumers loose their homes, homes they could not afford in the first place. As a taypayer, I do not want my money to form a soft bedding for banks to land on, or fund special loans for individuals who should not have signed the dotted line on their mortgage contracts.

On TV they had a special about the mortgage situation and the commentator asked homeowners about to loose their houses in foreclosure, if they knew what was in their contracts. All shook their heads innocently like sheep led to their demise blindly! Who signs a contract they don't read or understand? I say homeowners did understand the consequences, only now that those consequences have come home to roost, they expect the tax payers to bail them out. I say NO!