The real estate boom that Americans have seen for the past several years is beginning to subside. In January 2006, Realtytrac (www.realtytrac.com) reported a 45% increase in foreclosures nationwide over the same time period last year. This is an astounding increase in one year. It was also a 27% increase over the previous month. The biggest reason for this increase has been attributed to the rising interest rates and the amount of homes on the market. This increase has put the nationwide foreclosure rate closer to the historic average of 1% of all homeowners.
Georgia, Nevada, Colorado, Texas and Indiana Hit Hardest
The rates were especially high in the states of Georgia, Nevada, Colorado, Texas and Indiana. In fact, new foreclosures in Colorado tripled from December 2005 to January 2006. This was the highest rate of new foreclosures nationwide. Other states with the highest numbers of new foreclosures were Florida, California and Ohio. In Florida, there is one new foreclosure per every 707 households. This is almost double the national average. California was still well below the national average, but was gaining rapidly. The jump in new foreclosures does not bode well for the long term success of the California real estate market, which is traditionally one the most expensive.
Possible causes for foreclosure increase
Theories as to why we are seeing such an increase include the saturation of the market with new homes, the apparent slowing of property valuations in most markets, rising interest rates, and the new bankruptcy code. One of the effects of the new bankruptcy code was to increase the minimum payments for credit card bills. As a result, this is leaving homeowners will less disposable cash to pay their mortgages with.
Another significant reason is the rise in interest rates. Many people were purchasing homes with interest only loans. This allowed people to purchase more house then they could afford because they could make smaller payments by only paying the interest on their loan for typically three to five years. The problem these homeowners are realizing now is that they cannot refinance at a rate they can afford making their mortgage payment unmanageable. These is going to lead to an increase in bankruptcies that are fueled by people who are looking to either surrender their homes or get current on their mortgage payments.
A look ahead
The increase in foreclosures will undoubtedly raise the amount of bankruptcies that are going to be filed in 2006. Many homeowners will look consolidate their mortgage arrears and other bills with Chapter 13 bankruptcies. While others will file Chapter 7 bankruptcies to walk away from property that has become unaffordable with higher interest rates.
Conclusion
If you are at risk of losing your home and would like to find out what your legal options are, give us a call at 888.743.5787 or fill out our free legal evaluation form. The evaluation is free, no obligations attached.
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