RealtyTrac, a firm that keeps up with residential property in foreclosure, reported in January that the number of mortgage foreclosures is increasing faster in some states than the number of new homes sold. Reports are that there were 153,745 initial foreclosure notices sent out in the United States, which was almost half the total sales figure of newly built single family homes and existing homes and condominiums over the same time frame.
Of course in some states, California and Nevada, the percentage of homes affected is far worse than others (e.g., Vermont and West Virginia). The map to the left is based on May 2007 numbers. Therein is a major concern; nationwide homeowners should be mindful of the insidious effects that foreclosures and the rising inventories of homes for sale will have on home prices—and household wealth.
Foreclosures not only cause dislocation for the homeowners being forced out of their homes, but also represent an increased supply of homes for buyers and additional competition for other sellers. Homes in foreclosure or those that are about to be foreclosed force sellers to accept lower prices since they are in no position to wait for better offers. Those sales can help to push prices lower for everyone.
The “wealth effect” which has powered consumer spending during the housing boom is likely to further deteriorate as home equity declines as home prices fall. The Federal Reserve reported Thursday that for the first time in record-keeping dating back to 1945, home equity was below 50% for the last nine months of 2007. The newly issued number highlights the problems that millions of Americans are having keeping their homes, as their mortgage rates adjust upward and their property values decline.