Inventory of Foreclosures Declining

Though the mess of the foreclosures is responsible for the Real Estate crisis, things are looking up. Washington region’s foreclosures have declined by 32 % in comparison to 2009 that would aid the markets this year.

Foreclosures contribute to unsold inventory, which is one of the causes of plunging home prices. Also, debilitated condition of a few foreclosures brings down prices. Buyers are looking for a steep discount by buying foreclosure properties, even of homes in good condition.

Realtors and banks also realize this. Therefore, foreclosed homes sell at 26% less than homes nearby which have not been foreclosed upon.

The declined mortgage rates that we enjoyed through 2010 might have added to the fall in foreclosures. Many were worried about the mortgage rates due to the big number of ARM’s (adjustable rate mortgages) which would be readjusted in 2010.

Suppose rates were higher, many homeowners would experience a spike in mortgage payments and a few of them might have ended in foreclosure. Instead rates plunged in 2010, which implied that a few of these mortgages, in fact, became affordable.

The foreclosures number varies to a large extent in the region of Washington. The district of Arlington has lower than 1% of their stock in foreclosures while Prince George and Prince William Counties have above 4%. But this is a definite improvement since previous year when the foreclosure rate was over 6%.

The tide of Prince William foreclosures caused prices to fall to a large extent in the two years of 2008 and 2007. This led to buyers expressing a rise in interest, so sales soared and prices started improving. Prince George’s County experienced a similar surge in sales; therefore, prices may shoot up there in the near future.

However, the increase in repossessions by banks and a fall in modifications of loans are signs of persistence of crisis in the housing market.

According to data, the homes which are newly foreclosed will contribute to an increasing inventory of 1.2 million properties in various stages of foreclosure. As these repossessed properties come to the market, reduction in home prices are sure in 2011.

Prices of homes are set to fall by an extra 5%-15% as rates of mortgages increase moderately and backlogs of foreclosures work their way through. Further declines in home prices will exacerbate defaults as percentage of mortgages underwater rises from present level of 25%. The government will have to take up new measures to prop up the housing market.