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Housing Bubble News, August 1, 2006

PORTLAND, OR

by Mike Bryson
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Ring around the crisis. That’s paraphrasing an article at Inman Real Estate News about the national foreclosure hotline, similiar to the local hotlines that are currently popping up all over the U.S. The phones are ringing off the hook.¹ The foreclosure prevention hotline is being advertised on 90 TV and 141 radio stations around the nation, with Ohio residents making up a third of the calls. Ohio is experiencing the worst foreclosure run in decades and they’re only ranked 6th out of the top 10 worst foreclosure states. According to the Homeownership Preservation Foundation, foreclosures can cost a bank up to US$50,000.

A small Buffalo-region town is pushing towards almost 500 homes in foreclosure.² One reason for foreclosures is vacant homes, and the town has no idea why they’re going empty. While you can blame a few on owners dying without leaving a set plan to sell assets, it is most likely that residents are just leaving rather than fighting a bill they can’t pay. In a mobile home park about 5 miles from my home, owners have left US$40,000 homes because the US$800 per month bill is too much. We see the same thing in cars being repossessed: once a US$400 monthly loan is combined with insurance, gas and maintenance, the cost of owning the car exceeds the value received. With rental apartments being readily available (due to renters over the past half decade turning into home owners based on easy credit), homeowners who can’t pay the bill would rather cut their losses and run before the bank comes knocking. As more homes hit the market at liquidation prices, homeowners who extracted too much equity at the peak will find themselves upside down by significant percentages which could push foreclosures even higher when they can’t refinance again to bail our their high monthly payment.

Poor tiny neighborhoods such as this Buffalo town aren’t the only ones with foreclosures to fear. Massachussetts are up 66% in one year and 114% in two years, according to ForeclosuresMass.com.³ Since 2003, well over 34,000 Massachusetts foreclosed properties have been posted on the company’s website.

Home borowers aren’t just facing problems in the States as Australia sees a surge in home loan defaulters.⁴ TheAge says that home loan defaults for Victorians is up 50% in a year, a growing concern as the ECB is likely to raise rates again today putting higher pressure on those with variable rate mortgages. A quarter point interest rate hike could put an added $400 per year hike on already burdened borrowers.

Along with the US and the Aussies we see that the UK is facing a housing loan dilemma. Even with the added pressure of growing bad debts (19% higher internationally according to HSBC), the largest banks are seeing record profits.⁵ This is part of the concern of the regulated Central Bank market, which offers reduced liability for those who have the fastest access to newly printed money (the regulated monopoly of banks). Growing debt defaults comes with all inflationary markets, and most inflationary central banks are aligned with one another to prevent one currency from falling against another. The licensed banks have a monopoly on easy access to inflationary money, but the debtors are the ones who end up paying the most in the long run in order to keep their homes and cars.

Across the channel from the UK we’re seeing huge increases in home repossessions in Northern Ireland, with an increase of over 60% over five years.⁶ Ursula Toner from the Housing Rights Service said much of it is due to people borrowing against their homes to pay off other debts. Northern Ireland’s smaller economy may not be able to handle an outflux of cash that goes to pay off loans if their existing hard assets such as homes end up being fully owned by foreign investors. One of the silent demons of inflationary money creation and easy credit is how quickly assets can go from being locally owned to internationally owned (and then rented to the local residents). We may see such a change in many First World countries that borrowed heavily from Third World laboring countries such as China and India.

Discuss this report at the housing bubble forum.
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Mike Bryson is the news editor of the Global Unanimocracy Network. He lives in the Portland, OR region where he works as an IT business developer and point of sale consultant. E-mail Mike with news links or comments on this report.