Will foreclosures back off?

Having one’s home foreclosed on has to be one of the world’s worst financial traumas ever. Yet this is exactly what has happened to millions of homeowners in the last four years. Why have all these foreclosures occurred? And will the numbers get better this year? N.C. State University economist Mike Walden weighs in.

“Well … the reason they have occurred is we have had this really bad mix of a housing crash combined with high unemployment — the high unemployment associated with the recession. And that’s a mix that has definitely resulted in these highest ever foreclosures.

“The housing crash, of course, brought housing prices down – sometimes, for many people, below their loan value. So therefore actually carrying the loan didn’t make sense to them. And obviously the high unemployment rate reduced the ability of many people to pay their mortgage. So that’s a perfect recipe for defaulting on your loan, which indeed (is) what a foreclosure is.

“Unfortunately, most analysts think that foreclosures are going to continue at a relatively elevated level. In 2010 we had just shy of 3 million foreclosures nationwide. There are some analysts who expect that actually to be topped this year.

“So foreclosures are still going to be a problem. Obviously, they are directly tied to the job market and to housing prices. So we need the job market to improve, and we need housing prices to stabilize and perhaps move upward. Many think that will not happen — that combination will not happen until well into 2012 or 2013.”