2010 economy going over the cliff, led by new wave of foreclosures
Wall Street Journal veteran columnist Mort Zuckerman observed last week that the “Great American Recession Continues.” He writes that Americans have not been fooled by the stock markets strength, or government cheerleading. “Unemployment, in short, has graduated from being a difficulty, a worry. It is now a catastrophe,” he says. “Economists may see the recession as being over, but the man on the street does not.” He notes that family finances are still deteriorating.
If only it was just going to be a recession. Starting in October of 2009, I warned about a coming avalanche of real estate shadow inventory. Financial news outlets are starting to report that this inventory is starting to crash. A stampede of underwater homeowners is running for the exit, walking away from their homes in “strategic defaults.” The New York Times reports that millions of Americans in this “bleak position” are getting over any stigma attached to foreclosures, and simply looking at the bottom line. When a homeowner is facing a deficit equal to a decade of income, it is not hard to make the decision.
“People like me are beginning to feel like suckers,” Miami condo owner Mr. Koellmann said. “Why not let it go in default and rent a better place for less?” The increase in volume is worrying government economists. “We haven’t yet found a way of dealing with this that would, we think, be practical on a large scale,” the assistant Treasury secretary for financial stability, Herbert M. Allison Jr., said.
“We’re now at the point of maximum vulnerability,” said Sam Khater, a senior economist with First American CoreLogic, the firm that conducted the recent research. “People’s emotional attachment to their property is melting into the air.”
The FHA, now the last lender standing, is seeing default numbers which “foreshadow a crush of foreclosures.” “The share of borrowers who are falling seriously behind on loans backed by the Federal Housing Administration jumped by more than a third in the past year. The latest figures show that the FHA’s woes are getting worse even as the housing market shows signs of improvement. The problems are rooted in FHA mortgages made in 2007 and 2008.”
“A massive supply of delinquent loans continues to loom over the housing market,” RealtyTrac CEO James J. Saccacio said in a statement. “Many of those delinquencies will end up in the foreclosure process in 2010 and beyond.”
The next post includes predictions from financial experts for 2010.
