There is little doubt that the U.S. housing market is suffering from a wave of foreclosure activity. Some economists have called it a housing "depression."
In its latest report last month, the real estate marketing firm RealtyTrac noted that foreclosures in the second quarter of 2008 were up 14 percent over the first quarter, and up 121 percent from the second quarter of 2007.
But unless you live in Nevada, California, Arizona or Florida, you are much less likely to be included in those statistics. An analysis of the numbers show that, of the 739,714 foreclosure actions in the second quarter of this year, 373,919 of them, or slightly more than 50 percent, were in those four states.
Economists Charles W. Calomiris, Stanley D. Longhofer, and William Miles have analyzed existing government data on home values and foreclosures and conclude that nationwide declines in home values are likely to be small, if they decline at all.
"Our analysis reveals, unsurprisingly, that foreclosures and home prices have negative effects on each other over time, but this does not imply a vicious cycle of collapsing prices. Our models predict that as foreclosures continue to climb in many states, house prices will remain flat or decline in those states, but will not collapse," they write.
The economists call fears of a huge loss in home values for most across the United States "overblown." At the same time, they say predictions of a collapse of the financial industry, due to defaulting homeowners, is overstated as well.
If most homeowners in most of the country are not being threatened with foreclosure, it is definitely a very real and increasing threat for homeowners who happen to live in California, Nevada, Arizona and Florida. What all four states have in common is very rapid home price escalation, up until last year.
Because homes there were so expensive, buyers were offered "creative" financial arrangements, usually with very low "teaser" rates for the first two years. In many cases, speculators bought up houses, using these same financing products, hopping to flip the houses and earn a quick profit. When the market tanked, they were among the first to walk away.
In California, state officials are pressing lenders to re-negotiate loan terms to help stem the tide of foreclosures. According to DataQuick Information Systems, California had 23,528 foreclosures in June 2008.
"While modifications are growing, they are not keeping pace with the growing number of defaults and foreclosures," Paul Leonard, California director of the Center for Responsible Lending, told the Sacramento Bee.
