How will the value of YOUR home be impacted by the current economy?

Our current economic difficulties have wreaked havoc on millions of households across this country. We all have either heard or read about families losing their homes to foreclosure. Obviously, that is a critical challenge at this time in history.

However, I am not sure we realize that these tales of heartache not only effect the home that was lost but also impacts the neighborhood around that house. As more and more houses come to the market as distressed sales (discounted pricing), the value of homes in that area are driven down. We must also take into consideration that these distressed sales are no longer limited to certain states or certain regions in those states.

The first group of foreclosures to appear were predominately homes which were purchased with questionable mortgage products. First, subprime mortgages started to default and then we entered the wave of exotic pick-a-pay loans that are currently defaulting in growing numbers.

However, the fastest growing segments of loans going delinquent today are prime mortgages. They were loans given to people with good jobs, a good credit score and who had a good downpayment. My neighbors, your neighbors, people in every community in every sytate in this country.

Here is a graph showing the four major reasons homes are currently going into foreclosure:

As the graph shows, the major reasons for foreclosure today are not exotic loans nor loans given to people with lower credit scores. The two main reasons are an increase in unemployment and the home having negative equity (where the value of the home is less than the mortgage amount on the home). Again, those scenerios are playing out in almost every neighborhood in this country.

Homeowners, because of the economy, are becoming  delinquent on their mortgages in record numbers. Here is a graph from Calculated Risk which shows the level of foreclosures in each state (represented by the red bar) and the number of delinquent mortgages (represented by the blue bar).

As we can see EVERY state has a challenge. The question is – ‘What percentage of each blue line will eventually turn red?’ Meaning, what percentage of the current delinquent mortgages will wind-up as distressed properties.

The answer to that question will have a major impact on the value of your home!

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