Thursday, August 10, 2006

Housing Foreclosures Are On The Rise

This post describes what's going on nowadays. Home foreclosures are rising throughout the US, and most experts are predicting more. Why? I thought people who bought homes and condos have fully prepared their budgets for home ownership. I also thought most people considered fixed rate mortgages, especially at a time of low interest rates... in order to lock in the rate so that when rates go up or stay the same, they'll be safe. However, it seems that there are several factors that play in becoming default of your mortgage. First, source of income. If you lose your job, then you have no income for the month or few months to pay your mortgage. Second, I've learnt that alot of people bought homes with the alternate mortgage plans: ARMS. ARM loans are tightly linked with the current interest rates; after the first fixed-rate term ends, the interest rate gets readjusted accordingly to the current mortgage interest rates. Ok, that's obvious... because back in 2003-4, interest rates were around 5-6%, and today, they are between 6.5-7%. Third, slower appreciation for homes. As interest rates have rose during the past 18 months, the cost to borrow a large sum of money for a home gets more expensive. It hinders several buyers such as myself. This causes an increase in supply of houses on the market, and eventually, the owners have been (or will be) forced to lower the price of their homes to sell it.

The lessons: alway financially plan your budgets; dont take risky loans that will fluctuate with current interest rates after a defined term; dont buy anything if you can not save some money for emergencies (and maybe just an extra 100 is not enough for saving for you liquid emergency cash fund.)

The articles that inspired me to write this post on savingeverything: Bay Area foreclosures spike, even though historically low, Houston foreclosures highest since 1989 (wasnt this the same time house prices dropped?), Massachusetts foreclosures skyrocketed, and an article that says National Foreclosures decreased in the recent quarter but are up 25% since 2005.

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