Ray Kest, a business professor at Hodges University in Fort Myers FL who follows the local economy, said banks and other lenders are unable to process the increasing numbers of people who aren’t making their payments. “I understand they’re backed up so far, it’s a tidal wave coming.”
That wave is nowhere near creating, as millions of ARM resets come due this year, which means sharply higher mortgage payments for those whose home is no doubt dropping in value too. Many will walk away from the house, either voluntarily or involuntarily.
So, what happens to communities like Fort Meyers when huge numbers of foreclosures tanks their real estate market and economy? Blocks and blocks of mostly vacant homes and a city government no longer able to provide basic services because the tax base evaporated are some obvious results. This will trigger a further exodus of residents and businesses, making things even worse.
I genuinely think we will be seeing dead towns as a result of the real estate collapse. What happens when large numbers of people lose their homes? Where do they go? Will we have any real safety nets for them to bounce off of?
This is already happening in the suburbs of Phoenix. Instead of buying an older already built home, people bought bigger homes in the new developments popping up overnight out in the boondocks. They bought them with ARMs because they could get a bigger house. They actually had to get raffle tickets and be chosen to buy those homes at inflated prices.
It frustrated me when things were going good, I’m even more frustrated now. People were not using the brains they were born with. They went in asking for the deal that had the lowest interest rate and even though the documents stated that it would rise and could rise to 18.75%, they paid no attention. They were buying homes 60 miles from where they worked and buying gas guzzlers to get there. Then they went out and furnished these homes on the buy now pay later credit plans at 21% if not paid by a certain time.
I have no sympathy for them. They didn’t remember the Aesop’s fables they grew up with and played the grasshopper instead of the ant. I do feel sorry for the folks who did it right and now live on streets full of empty houses and the rest of us paying taxes to build overpriced schools that are now empty.
As a real estate appraiser I have seen this day coming for quite some time. I do not agree with the ghost town scenario. I do think that local governments will face huge changes (read layoffs) in the way they do business. Much like every business has over the past 10 years. Here in Ohio many mortgage brokers have gone out of business due to new laws. In the future this will lead to fewer people getting loans that do not deserve them.
The last study I saw said NV and FL were highest in foreclosures. As to what happens to the people– if the banks can’t sell the homes, the former owners probably continue to squat in them. Right now, in places like Michigan, people are being forcibly evicted– but if there’s no point, if the foreclosed home can’t sell because the market is flooded, why spend the manpower? Besides, does any bank want the publicity of evicting tens of thousands of retirees in a single community (e.g. Florida)?
What happens later when the market starts to recover is another question. I bet there are some favorable buy-back agreements negotiated– but yes, many people will eventually be out in the streets, leaving whatever equity they once had (and often their life savings) behind them. But by then, real estate will be recovering and the impact on the economy will be somewhat lessened. That will make the banks and the politicians somewhat more comfortable.
The bottom line is, I think, tent cities in the midst of a stagflationary recession just won’t do. Especially when the result is vast square miles of vacant (unmaintained) assets.
We are currently preparing to walk away from our home. It should be interesting trying to find somewhere to rent with a foreclosure and other resulting blackmarks on the credit rating… Almost every rental in CT demands credit checks.
When my wife and I faced that situation in the 1991 real estate collapse, my father-in-law gave me some wise advice: “Don’t worry: when EVERYONE has a foreclosure on their record it becomes much less troublesome.”
He was right. We found an apartment to rent without trouble, and within a year had rented a house instead.
That is pretty much what we have been told by a few people DJ. It still sucks. The other advantyage we have? We will be looking for a rental in the first wave of foreclosures… While there are still a lot more rental units available.
Gotta try and keep a positive outlook! 🙂
CT Man: You’ll find a place. Quick too, I bet. Keep us posted.
doomsday maybe dec 21 2012 a deadly tsunami will hit west side of north america the mayan and the quran warned the people