SURVIVING SHARK ATTACKS IN THE HOUSING MARKET

There is a new predator lurking in the shallows of the Real Estate Market. First it was predatory lending practices, mostly on loans originated by the unscrupulous independent loan originators. They were soon consumed in a feeding frenzy as the bigger bank sharks began to come into the warm waters discovering the food source of consumable mortgages was a buffet.

If the experts are right... we are deep trouble. The Joint Economic Committee published their findings in October of 2007. The study concluded that foreclosures will impact the local economy, and foreclosures will continue to devalued personal housing wealth enjoyed by most Americans. American home owners are in fact being eaten alive by soaring debt as mortgages rates readjust and personal income does not.

"We estimate there will be approximately 1.3 million foreclosures and the loss of housing wealth of more than $103 BILLION through the end of 2009.... The total loss in property tax revenue amounting to more than $917 Million".

Florida holds the second highest rate of foreclosure filings in the Nation. Second to California. The current levels of unsold builder inventories are contributing to the food chain of Real Estate making it even more difficult for owners of resale properties to compete effectively. Purchasers who acquired their properties in 2004 or later, paid higher prices, and have little to no remaining equity in their property.

As priced declined, negative liquidity resulted. The value simply wasn't there any longer. Consumers first feared predatory lenders offering higher interest rates, in exchange for low or no income verification, were later treading water as the costs of home ownership, property taxes, insurance and utilities rose disproportionately to personal income. Pulling them into deeper water, and they struggled floundering in a sea of swelling increased expenses.

The loans were predicated on the assumption that property values would achieve a minimum appreciation over the two year reset time periods. Based on this assumption, lenders offered greater loan amounts enticing borrowers with favorable rates to borrow more and pay later.

The predators are not the loan originators anymore. Most have been consumed by the Market already. The bigger fish, the banks and investment groups holding the mortgages have begun their feeding frenzy. The sharks are bearing down and consuming hundreds of thousands of homes like minnows in a shallow pond.

The Joint Economic Committee has made quantitative estimates indicating the potential magnitude of the rising scale of foreclosures and the cost impacts at the State and National levels. "We estimate there will be approximately 1.3 million foreclosures and a loss of housing wealth of more than $103 Billion through the end of 2009" The resulting loss in Property Tax Revenue is estimated to be $917 Million.

Moody's estimate in price declines is a modest 6.9%. If the price decline extends to 20% during that time period ending on the last quarter of 2009 the numbers increase exponentially to about 2 million foreclosures with property value losses estimated to be $106 Billion. The projected figures are conservative estimates assuming that all foreclosures over the 2007-2009 period come from the outstanding sub-prime mortgages of 2007.

The amount of sub prime loans originated in 2005 totalled $625 Billion or approximately 20% of the total loans. In 2006 another $600 Billion or 20% of all loans were sub-prime. Over this period the hybrid loans accounted for more than 72% of all sub-prime ARMS originated in 2005. An estimated 31% increase in payments is anticipated as these adjustable rates reset. "State and local governments will lose more than $917 Million in property tax revenue as a result of the destruction of housing wealth caused by sub prime foreclosures" the report stated.

Impacts on Communities Effected by Foreclosures

In Philadelphia a recent study by Shlay and Whitman found that abandoned property will lower property values on homes located within 150 feet by $7,627 or 0.1 percent, and will lower property values of homes located within 450 feet by 4.7% or $3,542. They found on average that one abandoned property on the block produced a decline of 9.1%. Where there were 5 abandoned properties on the block the decline on average resulted in 15%.

KEEPING THE SHARK FROM EATING YOU

Home Owners who purchased Property before 2004 are less likely to feel the bite of the bank. This predates hybrid loans and inflated adjustable rates. Prices of housing in 2004, made it possible for homeowners to have modest mortgages and still have equity in those properties despite the market decline and devaluation. Owners of properties purchased ten or more years ago, have achieved substantial equity and still have flexibility in their family budgets to sustain the decrease in recent market value.

Keep the banks from feeding on your home is a matter of taking a realistic assessment of your income, spending habits, and expenses. Trimming costs wherever possible. Put off purchasing anything expensive, and keep close watch on your credit cards. Usury rates are being imposed on late paying credit card customers often in the 30% range for as little as one missed or late payment. The average American currently has $15-20,000 in credit card debt. Once an introductory rate has been missed or is late, the bank has the right to readjust the rate of interest which often exceeds 15%-32% of total amount owed. Payments on a balance of $10,000 can be as high as $400 a month. Over a period of thirty years interest alone on a $9000 debt would be $18,000. Taking a big bite out of your paycheck. Consolidating and eliminating credit cards usage can save the average consumer thousands of dollars over the course of repaying the debt. Avoid paying the minimums if at all possible. Often the minimum payment will not cover the interest being charged on a monthly basis to your account.

EXPECT THE UNEXPECTED

Too often something unexpected will happen, and consumers are not prepared to deal with the financial aftermath of falling behind. Reserving an emergency fund even if it is only a few dollars a month can help to stave off hungry banks in an economic recession.

Create a Working Budget.

Factors to Consider. How much money do you bring home weekly after taxes? Knowing exactly how much money comes into the household will help create a solid foundation from which the basic necessities can be paid from.

Housing, utilities and food. Eliminating all extras will create additional supplemental money to pay bills with. Making a monthly list of what is owed and to whom helps in the practice of budgeting available funds.

SELL OFF UNUSED ITEMS

Garage sales, Yard sales, and consignment of unused items is an excellent way to generate additional income. Often treasures or former "must have" items are stockpiled in closets, garages and attics. A thorough clean out could help create catch up capital; which can be used to pay down existing debt. Effectively recycling stuff and cash in the process.

PREPARING FOR THE LONG HAUL

Waiting until the market stabilizes may be the best course of action for homeowners contemplating a move. The Government is considering Property Tax reforms for 2008, in addition to mandating banks to fix rates on sub prime loans in order to prevent the wide spread economic disaster from reaching fruition. Should this occur, borrowers who are current on their mortgage payments may receive some relief. Investors, however would not.

It is going to take time for the current inventories of homes on the Market to liquidate. St. Cloud, Florida Like most areas has a huge surplus of homes for sale including new construction, existing homes and investment properties. Buyers however, are in short supply at present. While growth in the area was estimated at 12% it appears to have equalized with retirees seeking greater value elsewhere and moving out of Florida in record numbers.

A greater economic base needs to be established in communities like St. Cloud, Florida. The Revenue base is not predicated on tourism, manufacturing or even Commerce. Subsequently, spending must also be reduced for non essential items until such time as the market recovers sufficiently to support the implementation of such expenditures. It is a precarious balancing act, however, elected officials as well as consumers must be diligent about how they spend the money they have in order for the Community at large to survive the arrival of the sharks.