1.4m US Home Foreclosures Expected Next Year

Source : The Straits Times, Nov 29, 2007

DETROIT - AN ESCALATING mortgage crisis will push another 1.4 million US homes into foreclosure and drive nationwide property values lower by 7 per cent next year, according to a report by a group representing city mayors.

The report, released on Tuesday by the US Conference of Mayors, predicted that states and cities will be left scrambling to make up for lost property tax revenue, particularly in markets such as California and Florida, where home values had soared.

The forecast, prepared by economic consulting firm Global Insight, was released as the non-partisan mayors group began a special meeting here intended to address the foreclosure crisis and its connection to problems such as neighbourhood blight and crime.

It forecasted that US home owners will see property values fall by US$1.2 trillion (S$1.73 trillion) next year, with almost half of those overall losses coming in California.

California property values are expected to drop by 16 per cent next year, the report said, costing the most populous state almost US$3 billion in property taxes.

The report said the weakening US property market would have knocked some US$676 billion from home values.

Another US$519 billion in losses could be tied directly to the financial problems facing borrowers who are unable to meet escalating monthly mortgage payments, it said.

During the property boom of 2004 and 2005, thousands of borrowers with riskier, or sub-prime, credit took out adjustable rate mortgages that had very low 'teaser' interest rates for the initial two years before resetting at much higher rates.

As those interest rates have started to reset, home foreclosure rates have jumped, especially in once-hot real estate markets such as Nevada, California and Florida.

The report forecasted that the US economy will grow by just 1.9 per cent next year, with hiring and consumer spending both curtailed.

Representatives of the US Conference of Mayors were expected this week to join calls for mortgage investors and loan servicing companies to make a collective effort to work out new payment terms with borrowers to try to contain the number of foreclosures.

The Conference of Mayors represents more than 1,100 cities in the United States with a population of 30,000 or more. - REUTERS