Sunday, October 28, 2007

Housing Crash Continues

CNN Money

The mortgage crisis saw another numbing statistic: number of empty homes increased during the third quarter to a whopping 2.07 million. That is a seven percent increase from last year. This is, however, down from first quarter levels this year.

What has caused these empty homes? There are always some empties, but a combination of high supply and low demand fueled by the loan crisis (i.e., individuals face additional difficulty in gaining loan financing) has led to this huge surplus of homes.

Some think this problem will get worse. Home sales were at 11 year lows this summer, and September sales dropped 24% from last year. Sales aren't expected to hit the floor until next spring, and fourth quarter orders dropped 40%. Debts of leading homebuilders were rated as “junk.” Countrywide, one of America’s leading mortgage lenders, saw a 1.2 billion dollar third quarter loss. Furthermore, an additional problem is looming. 2.8 million homeowners will see interest rate resets, and if these homeowners cannot afford the new payments, that could cause additional empties because of foreclosures. It’s likely that 3 or maybe 4 million homes will enter the market.

Question: Can the US government step in and do anything to reverse this trend of negative home-sales that appear to have no end?

Question: What international ramifications, if any, may this have?

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