RealtyTrac also notes that new default notices — the first step in the foreclosure process — were up about 10% from September, and represent a seven-month high. This is troubling because it suggests that America’s foreclosure problem is not getting any better, and that increases in foreclosure rates could be on the way.
What’s more, foreclosure rate increases can be self-perpetuating simply because foreclosed homes often diminish property values in surrounding neighborhoods. When values drop, people who are “underwater” on their mortgage (have negative equity in the home) are more inclined to hand their house keys to the bank and walk away from the property, generating yet another foreclosure.
This practice, known as “strategic default,” has resulted in even larger numbers of foreclosures and a greater decline in property values across the nation. A new report by CNBC claims that half of the homeowners in America are now underwater on their mortgages.
So are there any solutions to the real estate doldrums? Well, as I said in a recent article for InvestorPlace, it may be time to give real estate investors some tax breaks or other incentives as a way to clear out the excessive inventory of foreclosures that is damaging the market.
Yes, much lower unemployment will definitely help the real estate market. But achieving that will be a slow and painful process over the next few years. In the meantime, the real estate sector will continue to languish, which in turn will hinder the larger economy.
So don’t expect to see the housing market bottom any time in the near future, and if you are an investor gambling that the Las Vegas housing is suddenly on the way back to prosperity, you may have just rolled snake eyes!