1 in 33 Homeowners Predicted To Be In Foreclosure Within Next 2 Years

For those of you hoping that foreclosure crises has hit bottom, we’ve got some bad news. A new report released by the The Pew Charitable Trusts says that 1 in 33 homeowners is expected to be in foreclosure over the next two years, due primarily to subprime mortgages made in 2005 and 2006.

The report goes into detail about how each of the states is dealing with the mortgage meltdown. Everyone is affected, even those without risky mortgages.

More than 40.6 million homes across America are projected to lose value because of subprime foreclosures in their communities, and foreclosures may cost neighboring properties up to $356 billion in home value over the next couple of years, says the report. Also sobering is the news that foreclosure starts involving prime adjustable-rate mortgages increased 158 percent in one year.

The report also claims that the mortgage meltdown isn’t a regional problem for hard-hit states like California, Nevada and Florida. It’s national.

As Exhibit 1 illustrates, nearly every state is feeling the impact of the crisis. A report by the
MBA in March 2008 showed that in 47 states and Washington, D.C. mortgage loans entering foreclosure as of December 2007 had increased by at least 20 percent since December 2006.

Only three states–Alaska, Montana and Vermont Vermont–did not experience at least a 20 percent increase in foreclosure starts; less than 1 percent of the American population lives in those states.

You can read the entire report by clicking here (PDF).

Defaulting On The Dream (PDF)
[Pew Charitable Trusts]
(Photo:Jimmy Legs)

Comments

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  1. Me - now with more humidity says:

    I’m surprised it’s not more like 1 in 20, frankly.

  2. I love the sign. Must be from one of those sharks who spent $300 on a course on how to make money in real estate and is now skimming the bottom trying to find food.

  3. elf6c says:

    32 out of 33 not- I like my odds.

  4. laserjobs says:

    Vacant House – Check
    Generator or extension cord to neighbors house – check
    Crowbar and wrench to turn water back on – check
    Cold beer – check

    Now that is what I call off the grid livin’

  5. Elvisisdead says:

    so, 3%. Seems small as a percentage. I guess that means that roughly 97% of us can handle our finances well enough and not make stupid decisions?

  6. Pasketti says:

    WHY WHY WHY do people putting stuff in PDFs, that are intended to be read on a computer screen, insist on a two-column layout?

    Grump, grump, grump.

  7. DeleteThisAccount says:

    And I’m about to buy my first home… I think in some regards, what I am feeling may be just slightly similar, approaching the feeling of what an organ recipient may feel. Maybe that’s just my bleeding liberal heart. I’m conflicted over here, but I need a house and if its going to be foreclosed I can’t really do anything significant to help, I suppose.

  8. humphrmi says:

    I keep hearing the chicken littles saying something along the lines of “Everyone is affected, even those without risky mortgages.” I still fail to see what risk I have in this mess. I live in a house with my family. We have no plans to move or take equity out of our house. We have a 20 year fixed loan, with about 15 years left.

    Aside from the chicken littles driving my 401(k) value down, what downside risk do I (and probably the majority of people like me) have?

  9. iMe2 says:

    @Elvisisdead: That’s actually a large number when you consider that it’s an average. It’s more likely that certain areas have moderate to very high rates of foreclosure (10 – 30%) while a majority have relatively low rates.

    They have a state chart where you can see some of that variation state-to-state. When you consider that in the entirety of California the rate is 1 out of 20 homes, you can tell that market is really suffering.

  10. iMe2 says:

    @humphrmi: Nothing directly, if your neighborhood is experiencing them but you expect the market to rebound.

    But in the midterm, foreclosures = the double-whammy of fewer people paying property taxes and lower property values across the board. You can expect a reduction in your local school’s budget, for example.

  11. LorneReams says:

    @humphrmi:
    There is a risk of our tax money being used to bail everyone out.

  12. That-Dude says:

    @Pasketti: maybe the document was meant as a handout?

  13. CRNewsom says:

    @humphrmi: I think they are referring to the decreasing property values in the area of forclosure.

    Example: You purchase a house for $200k with $50k down (you owe $150k). Forclosure rates in the area make your property now valued at $130k (noone wants to live in a neighborhood/area where there are a bunch of forclosures). You now owe $150k on a property worth $130k. Not a problem on its own, but you also lost your $50k down payment.

    Summary: In the short term, bad news for everyone. Long term, prices may rebound, but maybe not to what they were when you purchased the place.

  14. @humphrmi: There’s at least some risk of neighborhood slumization. (I’m sure there’s a word for that.)

    Some neighborhoods simply won’t recover from the foreclosures and housing-price slump, and some folks like yourself who intended to be there for the long term will find themselves wanting to bail if crime rates rise and school quality falls and so forth, which is of course a self-reinforcing cycle.

    Also tax bailout, property tax base erosion, and contracting credit generally.

    Like you, I’m not *TOO* worried — we’re in a good place with our mortgage, our local job market hasn’t suffered too much (hooray local manufacturing base taking advantage of the weak dollar), and our city hasn’t been able to afford itself in 20 years, so further property tax base erosion can only make things so much worse.

    (And I’m sort-of resigned to a tax-funded bailout, and prefer that to a total economic meltdown.)

    But I am keeping a weather eye on neighborhood conditions. We’re in a very stable urban neighborhood that’s something of an island of “good” in a “not-so-good” part of town. (The bad part of town is somewhere else entirely.) I’d like my neighborhood to stay “good” and not fall into “not-so-good” — or have the not-so-good places around us start turning bad. The other “good” parts of town are all McMansiony, and I’d rather stay here in my older neighborhood.

  15. laserjobs says:

    @CRNewsom: Who made a down payment? Everything is freaking FHA with 3% down and there are “gifting” programs to make that 0% down.

    Let’s get realistic, joe6pack buys a house with no skin in the game on a teaser rate good for 2 years and can’t afford the reset. Joe6pack walks and blames everyone else for getting foreclosed on. Banks cry to mommy Bernanke because they don’t want to take the loss.

  16. opfreak says:

    on quick reading, I failled to find how they really came up with the 33% number.

    Other then they like to state 33% in the article as justification for everything.

    I would have hoped they would have explained that in more detail. Rather then stating it, then using that statement as a fact for all other ranting.

    Its like, stating I’m the smartest person in the world, And know everything I do is right.

    Then Using that as a justification for say robing you.

    Well I said earlier everything I do is right, Therefore, me robing you is right.

  17. Me - now with more humidity says:

    opfreak: they didn’t say 33%. They said 1 in 33, which is 3 percent-ish.

  18. adamcz says:

    Maybe people – for a short period of time at least – will understand that there is no such thing as a zero risk investment. Buying a home for more than it’s worth is no smarter than buying a stock for more than it’s worth.

  19. CRNewsom says:

    @laserjobs: humphrmi asked why this would effect him at all, as he has a stable, prime mortgage. I was explaining how even though you are doing fine, you can lose a considerable amount of money if your house depreciates due to neighborhood forclosures.

    /Your situation may vary.

  20. ratnerstar says:

    Ummm, 1 in 33 != 33%.

  21. Applekid ┬──┬ ノ( ゜-゜ノ) says:

    @opfreak: What’s this about you putting a robe on me? Perhaps the word you’re looking for is “robbing”.

  22. humphrmi says:

    OK thanks to everyone who responded to my comment (I won’t list them all here) but I understand the risks now:

    - Tax revenue and school funding issues

    - Slum-ization

    I’m not so worried about a short-term downturn in values, since I don’t plan to sell any time soon. I certainly understand the pain some are feeling if they thought they’d be able to sell and can’t now. I guess I’ve insulated myself against most of that risk (having decided to settle down and raise a family in our house, then when I’m old and can’t climb the stairs anymore, I’ll think about selling :)

    Thanks to all, good comments.

  23. GearheadGeek says:

    @iMe2: It’s really just a single whammy there… the banks that foreclose are still liable for the property taxes, or the tax goons will seize the house. The property values dropping because of the foreclosures (and because of the more realistic view of the value of houses) will be the impact on property tax revenue.

  24. flyingphotog says:

    @ratnerstar:

    FAIL! Where did you go to school???

  25. nequam says:

    @Eyebrows McGee: Slumification is easier to say.

  26. Snakeophelia says:

    We plan to sell our house in 2 – 3 years, but we don’t plan on using the equity in it as money for the new house. We know our house has increased in value somewhat, so as long as it doesn’t decrease to the point where it goes below the value of loan remaining on it, we’ll be okay. Our neighborhood is a cheap one, so while I’m sure there are people with bad credit paying high interest rates to live there, the banks probably figured it wasn’t worth it to screw people over with ARMs on our block. I guess we’ll just have to keep our fingers crossed and our eye on Zillow to see how our neighborhood is doing…

  27. nequam says:

    @ratnerstar: Yikes! The equation is 1/33 = 3.03%.

  28. GearheadGeek says:

    @flyingphotog: The question is where did YOU go to school, if you think that 1 in 33 DOES equal 33%. Examine the equation in ratnerstar’s post more carefully please. “!=” is the same thing as “”, or shorthand for “not equal to”

  29. GearheadGeek says:

    @nequam: Bloody hell people at least read posts carefully before you declare them to be in error.

  30. RagingBoehner says:

    Glad to see my old state of “Vermont Vermont” is still doing just fine. Probably because the burgeoning cow population is propping up housing demand

  31. opfreak says:

    sorry, I meant 1 in 33.

    not 33%. cant edit it. Once I started using 33%, I just kept going. Should have read it before I posted.

    Still, though, anyone come up with how then really figured 1 in 33 homes will be foreclosesed on?

  32. opfreak says:

    I made a mistake, I mean to say 1in33. Not 33%. Sorry, I know that 1/33 does not eqaul 33%. I was thinking 1 in 33, and somehow typed 33%.

    Anyways, point still is. Outside Pew Stating their study finds 1 in 33 homes will be foreclosed… where in that 51 page pdf do they actually spend time explaining that.

  33. backbroken says:

    Good news for anyone who is currently renting…great homes will be going on sale in your neighborhood shortly. And you can practically name your price!!

  34. nequam says:

    @GearheadGeek: Ha! I thought the “!” was a typo : )

  35. Me - now with more humidity says:

    76.23% of all statistics are made up on the spot ;-)

  36. laserjobs says:

    @Snakeophelia: Zillow is really crapy at estimating values, a search of the public records of current sales data will give you a much better idea.

  37. friendlynerd says:

    @ratnerstar:
    Are you working on GW Bush math? Fail.

  38. privatejoker75 says:

    two words…. Fuck ‘em

  39. failurate says:

    @humphrmi: And if for some reason you did have to sell or needed access to your equity, your return or amount available will be lower or non-existant.
    Vacant houses also bring crime into neighborhoods.

  40. Mom2Talavera says:

    In Michigan we have the ” Save the Dream initiative” In short it bails out homebuyers (income under $72,250 and home purchase of less than $216,750. ) who bought homes they could not afford and assists lenders who made loans they should NOT have made. I don’t feel bad for people that are in denial and don’t live within their means. What happened to personal responsibility and the ability to use a calculator? Sell one of your SUVs(and pay off some debt), stop using credit cards ,stop making frivolous purchases like your 15$ a day Starbucks habit….and shut the fuck up.

  41. GearheadGeek says:

    @friendlynerd: Are you working on GW Bush reading comprehension? Fail.

  42. Damn, baby. Time to swoop in with my valuable Canadian dollars and become a modern day American land baron.

    You’ll thank us for it. We eat right and our donuts don’t taste like shit. And we’re polite as all hell.

    You’ll thank us.

  43. Mr. Gunn says:

    LorneReams: “blah blah blah my tax money blah blah bailout rabble rabble rabble”

    Quite a few companies, state and local budgets, and investors are taking a serious hit. I only wish your tax money was bailing people out, maybe my IRA would quit spiraling around the drain.

  44. Mr. Gunn says:

    Pope John Peeps II: You’re still a bunch of hoseheads…maybe we should call you hosebaggers?

  45. Jean-Baptiste Emanuel Zorg says:

    @Applekid:

    What’s this about you putting a robe on me?

    I put on my robe and wizard hat….

  46. @Pope John Peeps II: We welcome our new overlords as long as they bear Tim Horton’s

  47. Invisobel says:

    @Eyebrows McGee: The word is urbanization :)

  48. hi says:

    @privatejoker75: Thats one word.

    You will be affected by this also… look into ‘great depression’.

  49. Juggernaut says:

    @humphrmi: You currrently have no plans or needs but the devaluation could affect you if a need arises…

  50. coraspartan says:

    Ugh, this is depressing. We bought our house (in Michigan) 6 years ago and had planned to move when our son graduates in high school in 3 years…I don’t think that’s going to be happening now. We will be lucky if we can sell it for what we owe on it by then. And no, we don’t have a subprime mortgage, just a normal 30 year fixed FHA.

  51. Juggernaut says:

    @Pope John Peeps II: I thought you guys were still on strike…

  52. xboxishuge says:

    Sweet, maybe I’ll actually be able to afford a house at some point, after the market craters.

    I hope the government doesn’t bail out these shitheads. You made a horrible decision, morons, now enjoy bankruptcy and foreclosure.

  53. Elvisisdead says:

    @GearheadGeek: For someone who has your screenname, you really need to learn some code.

    @iMe2: So, you’re telling me at CA is at 5%. Still doesn’t seem like a big number to me. CA is 2% over the national average.

    My point was that the X in X notation made the number seem higher than when listed as a percentage.

  54. iMe2 says:

    @GearheadGeek: Good point, I neglected to mention that. But it can also be true that an area with a lot of foreclosures can also have more vacated properties (ie the “slum-ization” effect mentioned by Eyebrows McGee), which was more along the lines I was thinking. Nevertheless I will refrain from using the term “double-whammy” in the future as, on reflection, it sounds ridiculous.

  55. ViperBorg says:

    No one spotted the Vermont Vermont?

  56. iMe2 says:

    @Elvisisdead: (1/20)/(1/33) = 1.65 – so California’s rate of foreclosure is actually 65% over the national average, which is huge given that “the number of mortgage loans entering foreclosure as of December 2007 had increased by at least 20 percent since December 2006.” (from the article)

  57. GearheadGeek says:

    @Elvisisdead: And how is that? In the language I use primarily in my work, != and are both treated as “not equal to.” Perhaps you just need to learn MORE coding languages, if you think that’s not so.

  58. GearheadGeek says:

    @GearheadGeek: Bloody hell… it ate the “less-than symbol followed by greater-than symbol” in my response, thinking it was part of an HTML tag I’m sure. Makes it look like there’s just a blank after an and.

  59. CumaeanSibyl says:

    @coraspartan: Well, the good news is that I don’t think the housing crisis is the real problem. Bad news is, even if the national housing market hadn’t crashed, you’d probably have a hard time finding a buyer — who wants to move here? We don’t have any jobs!

    /love the state, hate the economy

  60. johnnyboi1016 says:

    @Pasketti: You do not know that the document was meant to be read on a computer screen. It looks like it was meant to be a color printout brochure/packet. The pdf file was posted for our convenience.

  61. Thorny says:

    I submit a quick history lesson. 3.3% is not that bad.

    [cei.org]

  62. iMe2 says:

    @Thorny: Thanks Thorny, I was wondering what the historical numbers were and found it weird that the report didn’t provide that context.

    That being said, the following is troubling:

    “Today, the foreclosure rate stands at between 1.4 and 1.5 percent (about 1.5 and 1.6 million mortgages in foreclosure); even the most pessimistic estimates do not show it rising about 2 percent.”

    …well, 3% is a lot higher than that.

  63. Well, won’t be us! We got a 5% fixed loan in December, NYS Star tax and Veteran land tax exemptions… our mortgage is cheaper than renting now!

    But, some are not so lucky. Or smart to sign up for a variable APR…

  64. redheadedstepchild says:

    @GearheadGeek: Yeah. Learn some code. ;)

  65. mikelotus says:

    @laserjobs: most banks sold off the mortgage a long time ago.

    @xboxishuge: the impact of these bad decisions if just impacting them would be ok. But since it can drive down the rest of the neightborhood, Bear Sterns, etc., that is a pretty ignorant statement. Especially since lenders did nothing to validate incomes. Additionally, people who qualified for the 30 year fixed rate loans were sold a bill of goods to get the adjustable rate loans instead. This has probably happened way more than people realize given the FBI’s investigation into it. People that are not qualified for loans should have never received them and people qualified for better loans should have gotten those. Perhaps you don’t mind what could be the worse economic downturn since the great depression, but I sure as hell do. At least we know that this means McCain has no chance.

  66. @ViperBorg: Vermont, Vermont is just like New York, New York, but with more syrup and fewer production numbers.

  67. privatejoker75 says:

    @hi: actually no, it’s 1 word and one abbreviated slang “word”.

  68. ellis-wyatt says:

  69. WraithSama says:

    I’m about to buy my first house, and for better or worse, the market slide has worked in my favor so far. I’m trying to buy a large house with lots of room to grow into with the intent of living there long-term, so short-term value slides aren’t a concern (the quiet suburb we’re moving to has held onto property values quite well, too). Because of the as-late slash-happy Fed, I’m getting an interest rate so low on my fixed rate mortgage it would have been unheard of a couple years ago. Finally, the deluge of homes going up for sale has pushed listing prices of homes down in my area, allowing me to buy more home for my dollar. My wife and I have very stable jobs with a strong debt-to-income ratio so I’m not very worried about losing the house after we buy.

    I feel bad for people who are in a situation to lose their homes, but this is an advantageous time for people looking to buy a new home like us. I read somewhere that national home sales increased 3% in the last month, so it looks like others recognize the opportunity too.

  70. ageshin says:

    Not to worry. The government will use your hard earned tax dollars to see that no bank or mortgage institution will long suffer. Home owners, on the other hand….

  71. mobbo says:

    I am supposed to feel bad for people who probably falsified their earnings in order to qualify for terrible mortgages?

    No thanks. But I will take your house for 50% of what you paid for it.

  72. humphrmi says:

    @Juggernaut: Maybe we were raised differently. A house is a place to raise a family, not an “investment” or a fall-back savings plan. “If the need arises” I fall back on my savings. If I deplete that, I dig into my long-term savings. I guess we’re from different generations.

  73. amightywind says:

    i’m trying to imagine how the statistic could have the most oomph: 1 in 33
    3.03%
    more than twice than 1.5%!!
    30 in 1000

    either way, it seems like less than i would expect from this debacle. i’d imagine there’s plenty of the other 97% that are just as irresponsible, but will just get lucky.