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Housing Slump: the Result of Poor Lending Practices, Economic Stagnation, or Lack of Focus?
More than 1 million foreclosures are expected over the next six years according to a study by First American CoreLogic. Due to these foreclosures, an estimated $112 billion will be lost to lenders, investors and remaining equity.
By: Velin Performance
A primary reason industry analysts point to for the housing slump is a basic economic principle: The supply of houses for sale exceeds the demand. Industry figures indicate that the number of houses going on the market in 18 major metropolitan areas has steadily increased each month. For example, at the end of June, 2.5 percent more houses were on the market as compared to the end of May.
Why are all these houses for sale? For many, the houses are on the market due to necessity. After securing an attractive two-, three-, or five-year adjustable rate loan, many homeowners have seen their monthly mortgages jump hundreds of dollars following the fixed period and, unable to pay the new amounts, they must foreclose.
The recent collapse of the subprime lending industry and discontinuation of many attractive lending programs have meant that for each home going up for sale, it is less and less likely that a buyer is available. Approximately 25 percent of homes bought from 1998 to 2006 were purchased using the services of a subprime lender and since late 2006, more than two dozen of these lenders have gone out of business. The result is an increased inventory of homes.
While this equation seems simple enough, Ron Velin of Velin Performance (www.velinperformance.com)
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