Bankruptcy and Foreclosure

In a previous blog entry discussing a potential problem we might face in the future, a reply was posted about foreclosure. I thought that looking into the numbers on this might be a good thing. Something that dovetails into foreclosure is bankruptcy. So I thought it might be worth our time to explore these numbers to give us greater context on the what is happening out there.

First, lets look at bankruptcy.

For 12 month period ending Sept 30 2005 total bankruptcies were:--------------  1,782,643 [SOURCE]

For 12 month period ending Sept 30 2004 total bankruptcies were:--------------  1,618,987 [SOURCE]

For 12 month period ending Sept 30 2003 total bankruptcies were:--------------  1,661,996 [SOURCE]

Now that is all bankruptcies for the whole country. No huge jumps there, but when you look at data for foreclosures, things get more bleak.

Here is a rundown on just my state of California: [SOURCE] 

	2004 Q4	2005 Q1	2005 Q2	2005 Q3	2005 Q4	2006 Q1	2006 Q2
California	19340	21384	18620	19065	21730	28553	31748

As you can see, foreclosures in California have taken a HUGE jump in just the last 12 months. When you visit the source of this information, you can see that this is not just a localized problem. Foreclosures are up just about everywhere with only a few exceptions.

The problem we are facing is that folks who bought in the last year or two can potentially find themselves in a difficult situation. As the market cools, some of the financing choices that were made when the home was bought are coming back to haunt home owners that now find the 100%, interest only loan they got is leaving them stuck. In many places, if you bought your home in the last 2 or 3 years and you have to sell for some reason, there is a chance that you owe more than it is worth.

The financial numbers given here to not prove that point, but certainly stand as an indication that this could be playing a part.

It is time for those of us in the real estate business to start thinking creatively on how to guide clients through this sort of market. Some are paying a high price for decisions they made when they bought their homes - decisions that we need to work to prevent from being made my the current generation of home buyers.