Real Estate Foreclosures and the Forecast For 2009

STOP! That’s right. Yes, the real estate foreclosures are virtually spiralling out of control. Just pick up any newspaper, trade magazine or open any site over the Internet. You are most likely to be accosted by one or two ads inviting you to invest in foreclosed properties as they are the best realty investment opportunity available now.

Adding glitter to this is the fact that the property prices in the 10 largest metros in the US are likely to fall further this year (2009). Miami and L.A are likely to be the worst sufferers as can be seen from the chart below.

NOTE: Projected prices are for the end of the current year and the change is from Dec’08.

It’s the credit crisis that is beating down hard on the housing prices around the country. The reason? It’s the same – inability to pay off the mortgage payments, bank troubles, and higher instalments. The woes don’t stop: unemployment, steep medical bills, and lots more. But with interest rates touching 6.7% on an average in 2009, from early 2008, where’s the hope? Moreover, despite the fact that the government has taken over Fannie Mae as well as Freddie Mac, the mortgage rates have refused to come down. Adding fuel to the fire, the experts believe that rates are highly unlikely to come down any time in the next few months.

The inventory for real estate foreclosures is abundant and a quick look at it reveals 18.6 million vacant homes in the country. Adding to these numbers is the fact that 2.8% of the country’s mortgage owners are at least 3-months behind in their payment. This number has risen by 1.4% from 2008 and is expected to peak further in the first 2-3 months of 2009. Economists believe that if the current financial gloom lasts for the next 9 months, then the foreclosures are only going to be higher and overall it’s going to be a terrible year for the U.S. real estate industry.

Now, we all know that the residential real estate was at an all time high during mid-July 2006. However, such is not the case now and the prices have fallen down by as much as 20% as per the “S&P/Case-Shiller Home Price Index” report. Another 15% – 20% decline in residential real estate is expected within the next one year. The casualties are going to be all encompassing and even the, so far, unscathed areas, like New York, are going to have a tough time finding investors.

The only possible way this mortgage crisis is going to experience a turnaround is if the property prices go down so low that the investors can rent out their houses to catch up with their mortgages, or if people start buying bargain properties such as real estate foreclosures. In both cases, the prices would increase leading to a turn around by the end of 12 months.

So, wait, don’t rush yet!