Foreclosures, as Number and as Reality

Two more points about foreclosures.

MBA Economists estimates are that the foreclosure crisis will (a) spread to the much larger and much more previously secure prime market (so not just subprime) and (b) foreclosure rates will peak sometime in late 2010.

So the effect that foreclosures have on the real economy will continue to increase for an additional 15 months, severely hurting any recovery for the bottom 90% of the country, and peak just in time for the midterm elections. So it surprises me, for both economic reasons and as well as matters of political survival, we aren’t taking a more aggressive stance here. Is the grip of the financial industry that strong?

Last point – I’m a numbers guy. I’ll chat your head off about externality estimates of foreclosures, spillover into GDP, embedded options hidden inside financial instruments, etc. But these numbers are just abstractions of real suffering by real citizens in our country.

So I want to point out two fantastic articles by The American Prospect, who have been doing a great job reporting through to the reality on the street without neglecting the larger story, about the foreclosure crisis. Take some time to read them this weekend; it’s important to know how devastating these numbers are for neighborhoods.

Kai Wright, The Assault on the Black Middle Class Considering the way that housing has played a special role in the building of black middle-class wealth, the comparative impact on different races’ experience of middle-class stability may be thrown off for an entire generation.

Alyssa Katz, There Goes the Neighborhood A look into housing spectulators playing confidence games in a poor neighborhood of Atlanta while HUD and community groups try to reclaim the abandoned housing.

Oh, and also this article, from the New York Times back in March of 2009, when the foreclosure crisis was less than it is today.

Alex Kotlowitz, All Boarded Up Kotlowitz shows how the foreclosure wave is devastating Clevland, with a special problem of houses that have been all but completely abandoned by banks, left to a legal limbo of non-ownership.

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2 Responses to Foreclosures, as Number and as Reality

  1. A year ago, we made an enormous investment in our financial sector – providing banks with direct infusions of a large amount of cash and access to cheap loans in order to save, as Paulson told us, “the economy.” So how’s the economy doing these days?

    Financial sector’s declaring profits, setting aside large sums for bonuses.

    Largest, swiftest rise in unemployment in more than a generation.

    A record number of foreclosures in both sub-prime and prime mortgages – the double whammy of a result seen from lending to borrowers who never had the means to pay back the loan combined with the large unemployment seen by the middle-class, so both sub-prime and prime borrowers are now unable to pay their mortgages.

    When the policy makers view the financial sector as “the economy,” we’re seeing that massive unemployment and a record number of mortgage defaults are unfortunate side effects. And when “the economy” is propped up by lending, I suppose the focus on the financial sector is well and good.

    But an economy based on lending is not a very sound economy. At least, according to our recent experience….

  2. jm says:

    Another factor that will hit the housing market hard next year will be the exhaustion of demand from the younger age cohorts. The $8k tax credit deal is now pulling forward sales that would have occurred in months and years to come absent that incentive, and is undoubtedly stampeding people who can’t really afford a home into grasping at this apparently once-in-a-lifetime opportunity.

    Since home ownership rates are already at historically very high levels among the younger age cohorts, the pool of qualified first-time home buyers had already been substantially depleted before this program started. Going forward, it will be even smaller, and sales will start plunging in the low end of the market, the only area where there has been any recent strength.

    Soon they’ll need to announce an even more lucrative tax credit to preserve some semblance of life in the market. After a few rounds of this, such stimuli will become counterproductive, as people will put off buying to wait for even bigger give-aways they’ll feel are sure to come.

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