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FORECLOSURES IN MARYLAND, FORECLOSURES IN VIRGINIA

HEARD ON THE NEWS TODAY. FORECLOSURES ARE UP in the first quarter of 2007 by a dramatic number.

United States home owners experienced about 1,260,000 foreclosures in 2006. There were 430,000 foreclosures in the 1st quarter of 2007. Some experts predict upwards of 2,000,000 or more foreclosures in 2007.

CAUSES OF FORECLOSURES - SOME OLD AND SOME NEW CAUSES
The historical causes of foreclosures; job loss, death of a spouse, divorce, medical expenses and personal injury preventing employment and causing high medical bills, etc. are still there. The added cause is the inability of home owners to refinance ARM or Sub-Prime mortgages used to finance homes in the past 3-4 years.

"In 2006, 6.48 million existing homes were sold, down 8.4 percent from 2005, which was the busiest year on record. The drop was the steepest since 1989, when sales fell 14.8 percent from the year before." Washington Post. Friday, January 26, 2007. There are an estimated 69,000,000 existing privately owned homes in the U.S. Foreclosures are still a small percentage of homes owned. The news is not in the numbers, but in the dramatic increase in 2006 and 2007. Sales of new one family homes in 2006 were 834,000. New and resale homes sold in 2007 were about 7,314,000.

THE HOUSING BUBBLE DIDN'T HAPPEN. NOT EXACTLY.
While the predictions of a dramatic crash of home values has not occurred, there has been a real and dramatic
reduction in the numbers of homes sold. Prices are still high, but home buyers are not buying. This buyers' market is putting severe downward pressure on prices, but home sellers are still holding out in many markets. Owners who purchased in 2002-2004 have experienced a significant increase in property value. Owners who purchased in 2005-2006 are not so fortunate. Their home value is just about what they paid, or less.

FAST FORWARD 2 YEARS - Owners who purchased in 2005-2006 are not so fortunate. Their home value is just about what they paid, or less. In the years 2002 to the mid-2005, home values increased by as much as 100%. Home buyers who purchased with the extremely low interest rates of 2003 to mid-2005 have gained considerable equity and, assuming they didn't spend that equity, should be safe as long as they make timely mortgage payments. However, buyers who purchased at the limit of their ability or through stated income or high LTV loan types may be faced with the need to refinance that loan. With slow to no increase in home values in the past 2 years, many home buyers faced with maturing ARM loans cannot qualify for refinance at a similar or lower interest rates and are seeing their mortgage payments increase by as much as 25% to 35%. If the home owners obtained a low interest rate amortized loan with an interest rate of 4.75%, which was easily available in 2003-2004, they are now seeing their interest rates increase to as much as 6.75 or more. Selling is not often an option because there are so many homes on the market.

GOOD NEWS - BAD NEWS
EXAMPLE: Home buyers purchased a home in 2005 with a $600,000 mortgage loan at 4.75%. The July 2005
Loan Amount of $600,000 @ 4.75% with a 30 year amortization = $3,129.88 P&I. Fast forward to July 2007 and the interest rate is adjusting to 6.75%.
The mortgage balance has been paid down by about $20,000 to $579,704.
The good news is that the mortgage balance has been paid down.
The bad news is that mortgage payments are going up.
Now that payments have been made for 2 years at 4.75%, the interest rate is now adjusting up 2% to 6.75%.
August 2007, with a loan amount $579,703 @ 6.75%, 30 year amortization = Payment would be $3,763.

There are many different loan types that can produce the above scenario. Some will be easier, some worse for the home owner.

For a home owner with $150,000 annual income, the above, with average taxes and insurance, the actual mortgage would be about $4,375 a month and would represent about 35%of the family's gross income. Assuming a PITI of $4,375, if the PI payment is increased by $634 to $3,763, with taxes and insurance, the monthly mortgage payment would be $5009. A mortgage payment of $5009 monthly will represent 40% of the family gross monthly income. OUCH !!

What does $634 monthly represent to the average family?

A good HP Printer.
10 days worth of gasoline with a 10 mile commute to work each way.
A monthly payment on the family van.
Health insurance for family of 4 for about 1 week.
3 weeks tuition in a state college
10 day summer day camp for an 8 year old
A new compressor for the air conditioner.
4 months automobile insurance.
2 pairs of Ferragamo loafers.
1 Gucci shoulder bag.

That higher mortgage payment is going to cause some families to pass up purchasing some luxury items. That is, if the loan can be refinanced. Time may cure some of these problems. Young upward bound professional families will have incomes that increase. A 3% increase in income will help some families experience a softer landing until home prices level out and values start to increase as they always have and, we believe always will. Investment owners, however, who purchased for the purpose of flipping are experiencing foreclosures in very high numbers.

Courtesy: Homefinders.com

Lenn Harley, Broker, Homefinders.com, 800-711-7988, Serving home buyers in Maryland and Northern Virginia

Posted by Lenn Harley, Real Estate Broker, Maryland & Virginia on 07/30/2007 04:45 PM

Comments (26)

foreclosures in maryland, foreclosures in virginia

This post has been included in Virginia Information Fairfax County, VA Information

26 Comments on FORECLOSURES IN MARYLAND, FORECLOSURES IN VIRGINIA

JUL

2007

Lenn, I love your blogs. We have noticed EXACTLY the above scenario. In fact, my interest wanes a bit when the date of purchase is 2005 1/4 to the present, if they've taken a low down mortgage (we do mostly listings). It's my opinion that Florida is the hardest hit- investors FLOCKED, and walked away from thousands of dollars of down payment, facilitating the builder to lower the price and THEN some...but buyers are still watching. Very frustrating. At least in our area the paper loss from late 2004 is guestimate-able- 14%. Thanks for another great read!

Laurie.

Thanks for commenting. I was sitting here working on a web page and I hear on CNBC the news about the number of foreclosures and I was floored. Or, at least chaired.

Ouch is right! Foreclosures are affecting virtually every neighborhood in every town. 1 in 274 homes in our area according to Realty Track. Which of course is putting a pinch of desperation in homeowners trying to get out from under the enormous mountain of debt they have acquired. I have also seen the trickle down theory in play with utility companies, credit card companies, etc...anxious over late or missed payments. Florida tends to be transient in nature perhaps more so than other areas, as people come here hoping for a piece of sun year round, it does however, come with a high price tag. Wages are lower, and costs of living are about the same. Pay differences can be as high as 50% less when transfering for doing the same job up north compared to down south. We are seeing affluent areas impacted by rising Foreclosures as well. There will more no doubt as the year progresses.

What we are also seeing here, are the values of properties surrounding a Foreclosure being negatively affected as well. Depreciating nearby properties around 1%,. but lowering the overall comps substantially when banks are requesting appraisals. If the last sale was a foreclosed property it will impact appraised value in a negative way.

No immediate relief for suffering homeowners falling behind as mortgage and insurance rates coninue to rise in the wake of the stalled economy and housing market.

Thanks Lenn for a well written piece.

No immediate relief for suffering homeowners falling behind as mortgage and insurance rates coninue to rise in the wake of the stalled economy and housing market.

Thanks Lenn for a well written piece.

Viewing what is happening in the USA with so many foreclosures is very sad . We don't have this going on here in Canada and I have been observing the situation in the US for a long time now. So many factors taking an affect on what is happening and I often wondered just what was causing it. Thanks, Lenn, for a great post where you explained more of just what is causing so many foreclosures.

I always encourage my buyers to go with a minimum of a 5 year term while the rates are good. Rates are beginning to rise a little here , however I believe they will remain fairly stable over the next year or so.

I had to make one of my posts on my blog 'members only' as it was getting tons of hits from the American public. Most of them were putting words like 'how to walk away from my mortgage' or some variant thereof in their search bar. Those search terms led them to my blog 'Walk-Away Power' , which was nothing to do with walking away from mortgages. It saddened me to see the numbers of people searching for the best way to walk away from their mortgages.

Lenn - I bought a pair of Ferragamos on e-bay for....are you ready?.....get this....$70!!! Brand new, still in the box. The person selling them had bought them at an estate sale for $12 (that tag still on them). It's obvious they were new when I got them...what a deal....I put in a bid of $100 but no one bid over $69 so I got them at the $70. I took a chance, but it worked...now for my Gucci! I've got several D&B do those count? :)

Allison.

I don't believe our problems were caused by interest rates. It was the rapid increase in the price of homes due to LOW interest rates. Our market is usually interest rate driven.

Everyone wanted to get in on the appreciation boom. Prices in creased 100% from 2002 to 2005 hers. Many couldn't get a regular loan for the high priced homes, so they went with ARMs that adjusted dramatically.

Then BOOM. The market just died in about Aug. 2005. No more buyers to flip to.

Disaster.

Thanks for commenting

Mary.

Goodness. I have two pair and they cost me about $350 each. My Gucci bags were a small fortune.

But, I need them. I wear jeans. I always wear jeans. You can wear jeans anywhere if you carry a Gucci bag.

Jo-Ann. That's funny. The power of the blog.

"Walk away" indeed.

Many of them could probably sell if they would just let the things go. But, they are listed WAY over market.

Lenn, what I would like to know is, if the foreclosures in 2006 were 1,260,000, what were the total number of sales in the same time period. That is the percentage that we should be looking at and not at the increase in foreclosures from one year to the other. I would bet that percentage will be fairly low.

Even the percentage of 1 out of 274 homes in her area going into foreclosure are pretty low. 1 out of 274 is a .0036496%, that is about 1/3 of 1%. No one wants to see anyone lose their home, but most business in the US would love to have that failure ratio.

George. I thought about that when I heard the statistic on the TV. I intended to try to find the number of homes sold to compute the very number you inquire about, but I got busy and didn't. I'll try to find it now.

The increase over 2006 and the first quarter for 2007 should be telling.

Lenn

Lenn, After reading this I think I will work on a comprehensive analysis for Poinciana Fl. I truly believe my market could very well be the worst in the country!! It's ugly and it's getting worse daily. Preforeclosures, short sales and bank owned properties are the norm right now.

Bryant.

That's really sad. Florida is definately in bad shape.

Our market isn't one of foreclosures because there was so much appreciation. But, our market is just NOT COMING DOWN.

I was going to show a couple a home this week that I was following coming down from $580,000. It went under contract this a.m. for $417,999. The listing agent is a friend of mine and she told me the sale price. It had been on the market for 309 days. The longer they held the price up. the more they lost as the market came down.

Lenn,

You had mentioned that homeowners that bought in 2005 and 2006 were less fortunate, because their homes were worth what they paid them or less, that is the truth in many ways, I see it everyday with people completely upside down in their homes, I had only seen upside down situations in Car sales not in houses, but I as a mortgage broker of almost 8 Years now, put blame on the mortgage brokers that paid $100 for a license and then convinced everyone that they were equity rich, and that it would be okay to pull money out of their home as often as they want too,Sometimes Refinancing people numerous times in a year, and by doing that people were to comfortable spending and we are now in this mess.. The big problem is, there are only so many options out there for someone to Refi, if they have any dents on their credit, and then they have LTV problems, not to mention trying to requalify for a new loan, it's nearly impossible to get a loan right now, sad but it's true..

I won't take up any more space, great post plenty to talk about :0)

Tom Weiss

Lenn - I have seen many psuedo investors jump on the bandwagon too late. They watched some late night TV show, started buying to flip or bought a new build expecting the value to increase and sell before the home was complete. Not only are they facing foreclosure on what was to be their investment, some are now facing foreclosure on their primary home. Yes, this too will pass and we will see the market return. It will take some time........

Lenn, that's an interesting point you made in your comment about people losing $$ as they kept the price up. Do you see this effect leveling off right now or are things still coming down in your market?

JUL

2007

So far so good along the coast in So Cal.. inland there are going to be big problems.. but we are hanging in.. altho sales have slowed a lot in the last two months..

Tom. You touched on a very important point. We have always told people that real estate, unlike automobiles, is an appreciating asset. For folks who purchased here in 2005-2006, they have a depreciating asset. Interesting times.

Paula. Actually, folks didn't have to watch the late night infomercials, they could listen to CNBC and see the run up of new home builders' stock. They could read the Saturday Washington Post real estate section.

Jeff. No. Prices are still way over market. Buyers are firm. They will not pay the money. In many cases, they cannot.

Kaye. I don't believe any place is immune to the drop in prices in the next year or so. We'll see. I don't know that market at all.

Lenn,

Thanks for noticing my comment, I look forward to reading more..

Tom Weiss

I have a buyer right now who just can't make up his mind - he's sure prices will come down this winter and is willing to wait, but there's this home he really likes right now...but the price is strong. I've floated a lower price to the seller agent in conversation, and they would negotiate. Ah, the tension...

Jeff. Write it. Write it.

Sellers will do amazing things when faced with a well written offer, even a low one.

New homes and negotiating is what's bringing our market down. Sloooooowwwwly.

But, I believe that we have a long way to go.

Lenn,

That was a great blog! You had your calculator working overtime on that one. All you needed to do, to end it, was give the percentages of all that happening......kind of makes me think of the old Laugh-in TV show.

Dick Beals

Thanks Dick. You're right. My calculator is right here in front of my at all times. Couldn't get throught the day without it. Thanks for commenting.

Lenn... this is so true. And your numbers are so true, meaning the prices on homes bought in 2005 & 2006. Sure, at one point sales were down a tad.... but in the last 3 years, we have had more homeowners which can equate to a few more foreclosures. Overall, more people just living above their means.... great post.

jeff belonger

AUG

2007

Thanks for the encouragement to call my guy back yet again, Lenn...

AUG

2007

The number of foreclosures is really starting to build in the metro DC area marketplace. I think people don't really understand the problem. Thanks for a good illustration. Great Post Lenn!

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