Yikes! Foreclosure Rates Up

june 28, 2006

I saw some article mentioning that the number of foreclosures will probably go up this year. Now there is evidence that it is going up. And it is going up at a significant rate. It is scary to think how bad this situation may get, especially out here in California, where not everyone can afford to get a house on a fix-rate loan. I know of quite a few people who had, a couple of years ago opted to buy a house on an ARM (Adjustable Rate Mortgage) loan. Both for the benefit of a lower monthly payment (since ARM rates are usually a lot lower than fixed-rates) and because they couldn't afford otherwise. Was this short-term thinking on their part? The historically low interest rates could not last forever, and we are seeing a quick rise now. At this point, the Bay Area housing market is slowing down. People are taking their time finding the perfect house and houses are sitting on the market for a longer time. What does that mean? It means that prices are going down. It means that if you can't make your monthly payment and have to sell your house, you may not get as much as you think you want. All of this is a vicious cycle. We will have to wait and see how bad this will get though. I fear it may get a lot worse than it is now as people who had 5 year ARMs are now coming to the end of their 5 year terms. And these people will find an unwelcome surprise in their monthly mortgage payment when their term ends.