Foreclosure Indicators
During the last few years, there are huge amounts of written information on foreclosures and real estate market. This issue is addressed repeatedly in thousands of different articles. This is an article on what happens in the U.S., but there are foreclosure articles and extensive material about the current state of real estate market and foreclosures in other countries as well. Authors are trying to answer the question that haunts many people – when will foreclosures prices restart to rise?
In the U.S., foreclosure or other real estate prices have fallen for two years and a half and in January 2009, they fell at an annualized rate of 20%. From July 2006 until this moment, the average price of a house, foreclosed or not, has decreased by about one third, under SP Case – Shiller index.
We want to analyze the situation in more detail and for this purpose, we will use four indicators that are level of foreclosures or new housing sales, interest rates, evolution of the number of persons who apply for a loan and the affordability index for housing. Let us take them one at a time.
First, we will approach foreclosures or other housing level of sales. Although sales have fallen steadily over the past 2 years, in February a slight improvement of the situation was noticed both in terms of sales of new buildings, and of old foreclosed ones too. There are areas in the U.S. where foreclosed property sales have exploded due to the steep decline of prices. Among them, we can mention Florida, Minneapolis, and California bank owned homes, areas where sales in February surged by up to 90% due to weaker prices by over 40%.
In Detroit for example, because of redundancies made by the three big American auto manufacturers, the average price of a foreclosed homes sold in the first two months of the year reached the ridiculous sum of $ 12,700 dollars, down by 87% compared to 2003 when prices peaked. Sales increased by 22% in the first two months of 2009 compared to the same period of the previous year.
Secondly, the interest level is also important in the case of foreclosures. FED lowered reference interest to practically 0%, leading to a significant drop in mortgage lending. Currently, the interest rate on loans over 30 years has reached a historically low, i.e. below 5%. Never in history has been a mortgage cheaper. For comparison, during the 1983 crisis, the interest rate was over 18%.
Thirdly, we will approach the evolution of the number of applications for loans. In the U.S. there is an index called mortgage market composite index, which shows the evolution of applications for mortgages. In April 2008, this index had a value of 746.2 points. A year later (April 2009), the index climbed to 1250.6 points, a trend which indicates an increase of 67%. This shows that more and more Americans want to take out a mortgage. Theoretically, this is good news, because people are now informed on how foreclosure must be avoided. Otherwise, they get involved in the mortgage trap taking their chance.
