Housing Foreclosure in the U.S.: the Causes, Effects and Evaluation of Strategies



Housing Foreclosure in the U.S: the Causes, Effects and Evaluation of Strategies

Introduction

In light of the prolonged impact of recent U.S subprime crisis for financial realms, the heated debate is continued. It is obvious the shock brought by financial crisis influenced various aspects of real world. The sluggish stock market and increase unemployment rate can be the best illustration of this severe effect. Carra, (2010) suppose that it should be better termed as the beginning of “the second great depression” due to the enormous sweeping area. Multiplicity of factors is figured out by variety of scholars towards this turmoil because the surprisingly sizeable drawbacks in economic operation are exposed during subprime crisis.

Statistics about Foreclosure

The most recent data on the U.S. housing market suggests we may have reached a bottom. According to the National Association of Realtors (NAR), existing home sales were down slightly in March versus February but well above levels of a year ago. In addition, the inventory of homes available for sale has tightened to its lowest level in over three years, while prices in most regions of the country appear to have stabilized (i.e., no longer falling) (Acharya,2011). However, most experts anticipate the housing market will be hit by a large new wave of foreclosures that will substantially affect the current supply-demand balance for the remainder of this year and possibly into 2013. As a result, we may be looking at one more phase of price declines particularly in local markets where the housing bubble grew largest before it burst before we truly find the bottom to our five year housing crisis.

Fig: 1 Existing Family Home Sales Volume

Source: National Association of Realtors

The NAR's monthly report on housing for March was released April 19. It found that the volume of home sales for the entire U.S. in March was up 5.9% versus one year ago (March 2011). Some regions (e.g. the Midwest) registered double digit one-year growth in volumes (up 15.7%) while only one region (the West) showed a slight decline in selling volume (down 1.0% versus March 2011) (National Association of Realtors). The table below summarizes these findings.

Fig: 2 Existing Family Home Selling Price

Source: National Association of Realtors

Mortgage Amount and Delinquencies

According to the calculated risk, there are 2.24 million loans which are less than 90 days delinquent and 1.96 million loans that are 90 plus days delinquent.

Fig: 3 Mortgage Values

Causes

There were many causes and many economists are in debate of what was the actual reason behind the house foreclosures. Foreclosures are not uniformly spread across the U.S. housing market. They are disproportionately located in those states where the housing bubble became the largest and the subsequent decline most dramatic (Acharya, 2011). These states include the “Sun and Sand States” (Florida, Nevada, Arizona and California) but also other states such as Illinois and North Carolina. Hence, the impact of acceleration in the foreclosure process is most likely to hit those areas where the housing crisis ...