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Foreclosures: Increasing foreclosures and low house prices may spell doom
The latest news is that home prices in the U.S. are probably going to keep dropping further down, creating problems as far as the confidence of investors and the spending of consumers is concerned. Market researchers claim that the number of
U.S. citizens about to lose their homes because of foreclosure has doubled in about a year, and default notices keep going to the houses of many debtors from lenders. Ex Federal Reserve Chairman Alan Greenspan recently said that the odds of a recession in the
U.S. are a little more than one in three.
44 per cent of all foreclosures and more than 7 per cent of all home loans are attributed to ARMs or Adjustable rate mortgages to sub prime debtors. This year and next year, approximately two to two and a half million ARMs will be set and reset, and this time the rates are going to be much higher, causing some debtors to lose their houses. The numbers of repossessions by banks, defaults and scheduled auctions have risen to alarming proportions in barely a year, and the number of foreclosures is the most staggering yet.
CNN has said that soon more then seventy five per cent of U.S. housing market will be adversely affected by an overall decline in prices. Home prices are all set to drop very low. An overall loss of gargantuan proportions is augured for U.S. households if all goes as predicted – losses to the tune of three trillion dollars may be incurred. This steep decline in the general wealth of households will in turn affect consumer spending adversely, which is bad news for the economy.
The fact that home prices are on a downward spiral and the expected reset of ARMs worth billions of dollars, adds to the worsened situation already suffering from a commercial paper problems and a credit problem. Federal Reserve has slashed interest rates by half a percent because of the upcoming resets the economy will have to endure. For the first time in three whole decades, the value of the U.S. dollar plummeted below its Canadian counterpart.
It also went below the euro – in fact, the U.S. dollar has a 6.6 per cent lesser value than the euro. Inflation seems to be imminent and the cut in interest rates will only make the economic situation weaker. Oil prices have also risen dramatically, and will soon cost eight five dollars a barrel as predicted by experts. These higher energy costs add to the list of bad news for the U.S. economy.
David Berson, the Chief Economist of Fannie Mae, has predicted that economic growth in general seems likely to slow down as a result of problems in the mortgage and housing markets. From 2.6 % last year, economic growth in 2007 is probably going to come down to 2.3 %. Whether this gradual slow down will turn into a full blown recession is something that only time can tell. In the meanwhile, the households of America continue to feel the economic pressure.
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