Foreclosure Lists Continue to Dampen Recovery Hopes in 2010
Foreclosure lists are expected to grow, dampening hopes of recovery in the housing sector, because of the continued rise in mortgage delinquencies.
According to economist Cameron Findlay of LendingTree.com, mortgage defaults, which are precursors to foreclosures, continue to rise. He added that as unemployment remains high at around 10 percent, more homeowners are defaulting on their monthly home loan payments.
Last week, Fannie Mae stated that the rate for serious defaults in its single-family home loan portfolio jumped up from 4.7 percent in September to nearly 5 percent in October. In October 2008, the rate was only 1.9 percent.
Analysts said that another flood of foreclosures would increase the nationwide inventory of unsold properties and would surely delay a recovery in the housing sector. They said that although home prices rebounded in the last months of 2009 partly due to the original November 30 expiration of the federal tax credit, prices are expected to fall again if foreclosures continue to clobber the market.
In October last year, home prices stabilized based on the 20-city price index compiled by Standard & Poor’s/Case-Shiller, but price levels were still more than seven percent lower compared to prices in October 2008.
Another factor that will affect the decline or growth of foreclosure lists is the movement of mortgage rates. According to Freddie Mac, mortgage rates for fixed-rate 30-year mortgage loans surpassed the 5-percent level last week, which was still a low level compared to previous rates.
Analysts said that if demand for ten-year U.S. Treasury notes and other government debts declines, mortgage rates will increase – an event that would cause more foreclosure filings as adjustable-rate mortgage loans will reset to much higher loan rates.
The Federal Reserve Board has committed to continue keeping mortgage rates low and has been pumping money into the mortgage sector to impede any rise in rates, but it has plans of slowing its $1.25-trillion scheme of buying mortgage-backed securities in the last months of 2010.
David Blitzer, index committee chairman of Standard & Poor’s, said that the housing and mortgage sectors have still a lot of challenges to overcome, including fears of another wave of foreclosure and increase in mortgage rates.
According to analysts at Moody’s Investors Service, the U.S. government must continue supporting the housing and mortgage markets because they are still vulnerable to growths of foreclosure lists and continued decline in house prices.
