If the apple does not fall far from the tree; how far does the real estate market fall from foreclosures?
More than 11.5 million people will eventually default on their mortgages, predicts a leading mortgage analyst.
Did you read that right? Yes.
It’s no surprise that the weakening real-estate market has a strong correlation to the amount of severe negative-equity properties forecast to foreclose. Just like the old saying goes: the apple does not fall far from the tree.
Amherst Securities Group LP, one of the most respected companies in mortgage research, fears the current conditions are leading to an “impossible number” of defaults. This means more homeowners will lose their homes and more properties will be foreclosed.
So what does this mean for you?
More foreclosed homes mean an even greater supply of distressed homes. This excess inventory will lead to greater drops in the values of houses, not to mention the effects on communities as a whole.
As a result of more distressed houses, homeowners will also find it even more difficult to sell their houses. Such conditions lead to a feedback loop of underwater homes because of greater drops in home values and therefore a greater number of foreclosures.
To make matters worse, government intervention could alleviate the pain, however, the government seems unable or unwilling to do what needs to be done.
In order to stabilize home prices, government-owned Fannie Mae and Freddie Mac could remove excess inventory from the sale market and list them on the rental market. A smaller sales inventory will stabilize the market and help home prices to begin to recover. A greater amount of homes in the rental market will also cause rental prices to drop, helping struggling renters who are unable to buy.
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