The Plank

Is The Foreclosure Crisis Over?

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With the collapse of the auto bailout and economists warning
that the worst is yet to come, two recent reports would seem to make housing
the relative bright spot on the horizon: RealtyTrac
reports that foreclosures were down 7 percent between October and November, while
foreclosureS.com
reports a slightly less reduction. Alexis McGee, president of foreclosureS.com,
is all sun and roses: “In 2009, housing will not only recover, but we'll see
buyers leap into this market in droves, depleting our housing oversupply, and
actually put higher price pressures on the market.”

But Kelly Kurran of Housingwire.com
(an indispensable source for housing-crisis news) isn’t so sure. As she points
out, foreclosures may be down slightly, but the pre-foreclosure averagei.e.,
people who have received notice of mortgage default or foreclosure auction, but
haven’t yet completed the processis up 5.57 percent for the same one-month period.

The spread between the two is likely the result of banks ramping
up efforts to keep homeowners afloat. But with foreclosure rates on modified
mortgages reaching 50 percent, according to the Mortgage
Bankers Association
(MBA), those efforts are unlikely to produce lasting
results. The problem, according to the association, is that the housing bubble burst
was initially because there were too many houses and too easy credit. But now,
with the recession hitting hard, the cause is shifting to job losses. Over the
last year the two states at the top of the bubble, Florida
and California,
lost 156,200 and 101,300 jobs, respectively. Combine those with the consensus
expectation that the bubble still has further to deflate, and the housing crisis
is set to get a lot worse before it gets better. And that, of course, is the
root of the entire problem: Weaknesses in the mortgage market scare banks, who
cut back on lending; without credit (or consumers buying their products), companies
cut back on hiring or go under; job cuts lead to further housing losses. Rinse and
repeat. And run.

--Clay Risen

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