Foreclosure-Caused Home Inventory Pile Up Downs Home Prices and Homebuilders

by Peter Vernon on Foreclosure Crisis

A surprising increase in contract signing to purchase repossessed homes occurred last December indicating housing demand. The pending home resale index showed a 6.3 increase to 87.7, the first rising since August. But other sources say that the inventory of foreclosed homes actually caused a $3 trillion lost of home value in 2008.

The increase in deals and the current administration’s foreclosure relief efforts to promote loan modification caught the attention of home builders’ share. But with the existing stiff lending standards and home price depreciations, homebuyers may still hold on to their funds. This may prolong the housing recession.

Stocks then increased while Treasury securities falter. The Standard and Poor’s 500 Stock Index grew 1.6 percent. Then, the builder super composite index had an 8.6 upsurge too. The 10-year note even closed at a good 2.87.

Economists see that pending home sales may only have a 5 percent decrease or 2 percent increase. Empty home sales increased to 2.9 percent before the year ended. And there are about 19 million houses that are empty.

Re-sales are said to have a 13 percent upturn in the South and Midwest while a 3.7 and 1.7 slump was experienced in the West and Northeast.

But sales of repossessed homes in the market dominate as it is 90 percent of all houses for sale. Foreclosed home re-sales climbed 6.5 percent in December after foreclosure pushed down home prices by 15 percent. But there is a disappointing low for new home sales.

The administration is proposing a taxpayer-shouldered mortgage relief that aims to protect lenders from delinquencies if the loosen their lending standards. But even with low mortgage rates, foreclosure still escalates.

Slow sales hurt new home builders. Swelling foreclosures keep the inventory high making less demands for new homes. Then there is unemployment and tough lending procedures, keeping more prospect homebuyers away. Builders are then forced to cost cut by laying-off workers.

Private construction is said to have fallen 3.2 percent last December. 2008 was really bad for home building that it crashed 27 percent.