Foreclosure activity slides for fourth month, but trouble lies ahead

The terrible trouble in the housing market may be ending. RealtyTrac reports that foreclosure filings fell 8% in November compared to the previous month, down to 306,627. One in every 417 homes in the U.S. received a foreclosure filing during the month. The figure was up 18% from November 2008.

"November was the fourth straight month that U.S. foreclosure activity has declined after hitting an all-time high for our report in July, and November foreclosure activity was at the lowest level we've seen since February," said James J. Saccacio, chief executive officer of RealtyTrac. "Loan modifications and other foreclosure prevention efforts, along with the recently extended and expanded home-buyer tax credit, are keeping a lid on the most visible symptoms of the nation's ailing housing market -- foreclosures and home value depreciation."

The housing markets hit the hardest, with prices down 50% in some cases -- Nevada, California, and Florida -- are still the areas where foreclosure activity is highest. Jobless rates in those state may drive down the housing markets for months to come.

The improvement in foreclosure rates may not last. Future home values will be determined by unemployment and underwater mortgages on the one hand and tax credits and low mortgage rates on the other. Recent data show that about one quarter of home loans are underwater. People with such loans do not have much incentive to keep their homes. The days when home equity loans could be used for retirement or consumer spending are past. Mortgage default rates could still be hit by homeowners who took out "interest only" loans. Many of those will reset causing much higher monthly home payment obligations. Some of the people who took advantage of these options when home values were still rising in 2005 and 2006 may find that their mortgage payments are too high for them to meet.

Unemployment is still growing but the rate has dropped sharply. At the beginning of 2009 joblessness was increasing by over 600,000 a month, November's number was only 11,000. But the rate at which people lose jobs could ratchet up again next year. A hard retail season could cause lay-offs and store closings. Poor access to credit and weak consumer spending may contribute to more firings across many sectors in the first part of 2010.

There is also reason to believe that mortgage rates will not stay at historic lows. Federal borrowing is taxing the global capital markets. Sovereign governments are likely to continue to raise money to offset deficits. Central banks may also begin to raise interest rates if they see speculative bubbles forming in the equities and commodities markets.

Many of the forces that caused high foreclosure rates have not gone away, and some of them are growing in strength.

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