Expect a Flood of Foreclosures Over the Next Two Years
September 14, 2008
A new report by Global Insight says foreclosures could drop U.S. property values by more than one trillion dollars next year. And few cities will be spared. Buyer beware. Mortgage holders beware. All Americans should be concerned.
The nation`s major metropolitan cities will lose billions of dollars in revenues next year because of the housing crisis. That`s the conclusion of a report released today from the U.S. Conference of Mayors meeting in Detroit. Also today, a separate report issued by Global Insight predicted foreclosures could reduce U.S. property values by $1.2 trillion in 2008. Half of that drop in value would come in California. Foreclosures are spreading well beyond the once hot real estate markets.
For instance, Chicago is hardly the poster child when it comes to soaring foreclosures. The city didn`t see the huge amount of investment in real estate the way cities like Las Vegas did, nor has it fallen on tough economic times the way cities like Detroit and Cleveland have. Experts say what is happening in Chicago is happening in a lot of communities. Consumers, especially in lower income neighborhoods, purchased homes with sub-prime adjustable rate mortgages. When interest rates on those loans adjusted upward, the borrowers couldn`t afford the payments and defaulted on their loans. As a result, there are entire blocks in some Chicago neighborhoods with several vacant homes.
Geoffrey Smith, research director for Woodstock Institute, has been studying the impact of foreclosures on the city. He says one foreclosure on a city block can decrease the value of properties around it by 1 percent and several foreclosures can ripple through the entire community.
The Woodstock Institute also documented that increases in foreclosure rates can lead to increases in violent crime in a community. We have also seen that increases in foreclosures have an effect on the property tax base of various communities across the region.
Hillary Clinton suggested during the January 31, 2008 Democratic debate to freeze foreclosures and to freeze interest rates. That is a start to help contain the flood of potential foreclosures.
Charles Donovan is the founder of the http://www.SubprimeMortgageSolutions.com Web Site and Bulletin.
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