With the state of the current real estate market and the economy we are seeing foreclosure proceedings set records in 2007. Some are saying this is only the tip of the ice burg with the worse yet to come. It started this spring when lenders began foreclosure proceedings at an unprecedented level.
We are probably going to see an increase in the number of foreclosures in the weeks and months to come. More and more people are falling behind with mortgage payments and now they are unable to refinance. These foreclosures will most assuredly cause the prices of homes to drop. It’s the law of supply and demand at work.
It would appear that the cause lies with the adjustable-rate mortgages. When the rates increase this causes the payments to increase as well and many home owners are no longer able to afford their once affordable mortgage. Some are seeing $500, $700 and even $1,000 being added to their mortgage payment. Most are just not prepared to handle such a drastic increase in their mortgage payment. Other determinants to the problem appears to be the fact that many are losing their jobs in states such as Ohio , Michigan and Indiana.
When the prices of the homes, in certain markets drop, consumers find themselves owing more than their homes value creating a situation of negative equity or no equity.
This is also having an affect on renters. As more and more people are being forced out of their homes they are faced with the alternative of renting. This is causing a shortage of rental units which in turns causes the cost of renting to skyrocket. It would appear that they cannot keep up with the demand for rental units. Renters are now eager to renew their rental agreements because they can no longer afford the now stringent requirements necessary to own a home. And with a risky economic outlook some are rethinking the decision to buy a home and become a homeowner.
Within the next year we are likely to see foreclosures continue to increase with no end in sight. I did hear however that there are some plans in place to help homeowners on the verge of losing their homes and facing the threat of foreclosure. Hopefully we will see something materialize before the effects hit the economy with even more force. One day things are going great and the next the economy is in a total disarray.