For months, we've been expecting the next wave of foreclosures to hit the market. With a record number of homeowners defaulting on their mortgage payments, it's bound to happen sooner or later. According to yesterday's headlines from Housing Watch, we've got a "shadow inventory" of almost 1.8 million homes that are on the brink of foreclosure. Of the 1.6 trillion in existing mortgages packaged into mortgage backed securities by Wall Street, approximately $425 billion worth are "extremely late" on their payments.
Despite the best intentions at assisting distressed homeowners, bad mortgage debt continues to rise with little hope of reigning it in. The tough job market and high unemployment rates serve to add fuel to the economic firestorm. After all, it's difficult to pay the mortgage without any income.
The current shadow inventory estimate is about half of the entire market of homes for sale, according to Housing Watch. Additionally, there are many other homeowners who have hesitated putting their home on the market due to market uncertainty. In essence, this only clouds the housing market's supply and demand picture. Our local Fredericksburg, Virginia area isn't any different than the rest of the nation. We've got plenty of foreclosures on the market, and many others waiting for the market to turn.
Current estimates indicate that existing foreclosures , and the additional shadow inventory, will take nearly three years to sell at normal market absorption rates. Can you imagine what will happen to home prices once the shadow inventory, and other would be sellers put their homes on the market? Normally, I'm not an advocate of predicting the future. But, in this case, with an overabundance of homes, and current economic conditions, something has to give.
When that time comes, do you think the sound we'll hear is the shattering of the price floor for homes? If so, let's hope we're not caught unawares. We've certainly had plenty of warnings.
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