Wow. Bad news from CNN money about the US market. Foreclosures in August jumped up 53% higher than the previous year, most of this happening in what was once the hottest markets: Florida, California and Nevada. From the article:
“Rick Sharga, RealtyTrac’s vice president of marketing, says the rising foreclosure numbers are in part the result of rising monthly payments on adjustable-rate mortgages, which have a low introductory interest rate that heads higher after an initial period.
“Usually, foreclosures are a lagging [market] indicator,” he says. “But we’ve never had a situation like this with adjustable-rate mortgages amounting to $400 billion to $500 billion coming up for adjustment over the rest of the year.”
Fortunately we don’t seem to be as keen on these types of mortgages in Canada, but there are concerns about a tanking US market dragging the Canadian economy down with it. The US is by far our largest trading partner.
“Contrary to what many consumers may believe, lenders are not anxious to foreclose on homes and put families out on the streets. Foreclosures tend to be money losers for lenders and are done mostly as a last resort.
Sharga says lenders are beginning to recognize that a problem is brewing and are taking steps to address it. They are much more amenable to a short sale, for example, in which they accept a low-ball, cash bid early in the default process that may not even cover their mortgage, in order to avoid a larger loss later. That can help homeowners by preserving their credit scores and easing their transitions into the rental market.
“Lenders say they’re looking for ways to work with homeowners in trouble,” reports Sharga. “So for homeowners looking at a default situation, the sooner they talk to their lender – and see what options are available – the better.”
If bank foreclosures are accepting low-ball cash bid offers that don’t even cover the mortgage, what pressure is that going to put on home prices in their area overall?