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The housing bust that put an unprecedented number of homeowners into foreclosure this year is turning out to be a boon for first time homebuyers. Lenders are experiencing an increase in bidding wars that make one think of the market’s American Dream period when almost anyone was approved for a home loan. Some experts are saying that this new trend may be the mark that the housing market crisis is beginning to recede.

California, Florida, Nevada, and Arizona that were four of the worst hit states lead this phenomenon where home prices once skyrocketed leaving the worst foreclosure crisis in decades. Now dominating the markets in vacant new homes, foreclosures, and other calamitous properties, are falling prices that grieve homeowners who are desperate to sell.

Between January and March one of every four home sales was a desperate sale to keep out of foreclosure. And that figure leaps to over fifty percent in the most distressed areas such as Detroit, Las Vegas, Los Angeles suburbs, and in new subdivisions where lax mortgage lending standards and speculation ran like a herd of deer under gunfire.

Bankers are seeing competing offers on homes that once sold for $350,000 three years ago and now going for $175,000.

“It’s not uncommon to have 10 to 20 offers on one house, and for the house to end up selling for more than its market price,” said Erin Attardi, a Sacramento Realtor. The strategy, she said, allows the bank to be selective, picking buyers with solid financing or those able to pay in cash.

In April, more than 660,000 properties were sent back to the lenders, which increased from 254,000 in April of 2007. A record three million homeowners was a month late on their mortgage payments in the first quarter, according to the Mortgage Bankers Association. Another 450,000 homeowners entered the last stage of foreclosure.

Now buyers are finding deep discounts on lender-owned homes, and that means the realization of a wonderful opportunity to buy that first home. But with the new boon in lower prices comes frustration. New buyers are finding that the competition can hamper their ability to making the best offer that the bank will accept.

“It’s actually stimulated the market,” said Janice Ziesig, owner of Z House Realty Group in Orlando, Fla. “Things are moving now — more so than they were.”

The foreclosure crisis continues to worsen amidst predictions from economic gurus in April that the situation would work itself out. The Mortgage Bankers Association reported that 2.5% of mortgage loans being serviced by its members are in foreclosure – a historical record high. The numbers mean that 1.1 million homeowners have or are in the process of losing their homes, which has increased from 2% of loans – or 938,000 homes – at the end of 2007. Also hitting a record high are the 3 million homeowners at least one payment in arrears, and 737,000 mortgage holders are three months behind, though not in foreclosure yet.

There is little hope to expect the housing crisis to slow until 2009 and perhaps not until a couple of years down the road. “It’s the same story we’ve been seeing for a while now - we had too much reckless lending and buyers who got over-extended,” he said. “We’ve had an unprecedented decline in home prices on a nationwide basis, which is public enemy number one for mortgage loans. And now you’ve got an overall economy that has slowed adding to this toxic stew,” said Michael Larson, real estate analyst with Weiss Research.

Subprime loans with adjustable rates that were granted to borrowers with less than perfect credit scores are the biggest problem. Four out of ten (39%) ARM loans have been reported to be at least a month late, or already in foreclosure. But even the less risky prime fixed rate mortgages that were considered the least risky loan suffers at a foreclosure pace of 1.2%, double the rate just a year ago. About 1.2 million prime mortgages are more than a month in arrears.

According to Jay Brinkman, MBA’s vice president for research and economics, the prime loan segment was hurt by so-called Alt-A loans, which didn’t require income verification for buyers with good credit. May is the sixth straight quarter with record home loan foreclosures. The six states experiencing especially hard times are California, Florida, Arizona, and Nevada. Investors who grabbed up real estate using the riskiest mortgages available fueled rising home prices. Ohio comes in at a close second in foreclosures as the unemployment rate climbed to 5.7% due to businesses leaving the state for others with a more healthy economy.

Brinkman said that in markets like these, where home prices have fallen so far from the market’s peak, finding solutions to keep a home out of foreclosure are more difficult.
He also added that, given the large impact California and Florida are having on the national foreclosure numbers, and the fact that historically foreclosures peak about three years into the loan’s life, he expects the number of foreclosures will continue to rise.

There is a glimmer of good news. The rate of homes going into foreclosure in Ohio and Michigan was narrowly lower than it was in the fourth quarter, and 18 other states also saw a decline in that rate. Brinkman said he hoped that means the crisis is at or near a bottom in much of the country, and that foreclosure prevention efforts have started to have an effect. But he added that a slight improvement in one quarter doesn’t necessarily mean the end is near.

Indeed, the rate of homes going into foreclosure continued to climb sharply higher in California and Florida, as has the rate of loans in those states that are 90 days or more past due but not yet in foreclosure. Brinkman said that in markets like these, where home prices have fallen so far from the market’s peak, finding solutions to keep a home out of foreclosure are more difficult.

He also added that, given the large impact California and Florida are having on the national foreclosure numbers, and the fact that historically foreclosures peak about three years into the loan’s life, he expects the number of foreclosures will continue to rise.

June 6, 2008

Americans are already suffering from a foreclosure crisis, imposingly high gasoline prices, and rising food costs. May showed a downgrade in the unemployment rate of 5.5% that hasn’t been seen since 1986. Over 49,000 jobs were cut this month. With the grim news came Wall Street sliding down more than 200 points in morning trading. Economists were surprised at the big increase in unemployment after forecasting a one-tenth of a percent drop to 5.1%. The nation’s employers have now cut payrolls for five continuous months.

Washington expressed disappointment at the news this morning, but said that the unemployment rate “is still lower than the average of the last three decades.” Jobs were severely cut last month in manufacturing, construction, professional and business services, and retailing. Gains were found in education, health fields, government, leisure, and hospitality.

The 5.5% unemployment amounts to 861,000 people out of work in May 2008, rising to 8.5 million total. Just a year ago, the jobless rate evened out at 6.9 million for a rate of 4.5 percent. A lot of people have been talking about the question of the nation being in a full-blown recession at least for the average American whose paycheck has only increased 0.3% in the midst of the economic breakdown. Federal Reserve Chairman Ben Bernanke has hinted that the central bank’s rate cut campaign is probably over for now.

The unemployment rate is expected to rise to 6 percent or more early next year. Employers won’t be hiring again any time soon until they see proof that the economy is growing again in the right direction. Much of the reason for the unemployment rate is the influx of students now entering the job market. This year marks the largest increase in teenage joblessness since 1948.

“This is an ugly report on the labor market,” said Allen Sinai, chief economist at Decision Economics Inc. in New York. “Most of the economy looks in recession.”