Trying to guess how many homes will be lost to foreclosure over the next several years is a fool’s game. No one knows what will happen to employment. The role that the federal government will play in refinancing and buying mortgages is ill-defined.
The change in administrations in Washington may mean a change in the entire approach taken by Washington agencies which could do something to change the tide of housing prices.
According to MarketWatch, "Credit Suisse’s fixed-income research team forecast that 8.1 million mortgages will be in foreclosure over the next four years, representing 16% of all mortgages."
The number is numbing and trying to cope with what it would do to the broader economy is almost beyond imagination.
There are about 120 households in the US. Fifty-five million of those are owner-occupied homes. If the forecast of eight million foreclosures is correct, 15% of all homes would be thrown into the system, almost all of them without buyers.
Some parts of the US would become ghost towns, especially the older industrial cities like Detroit. The tax base in those areas would be cut by a huge percentage. It is hard to imagine how municipalities hit that hard will be able to operate without federal assistance. States which already have severe housing problems, particularly California and Florida, would require outside support as well.
If the housing crisis is accelerating as rapidly as it appears to be, the notion of the federal government buying home, which has been suggested by some of the more radical economists. may be less expensive that trying to bailout scores of cities and states.
One thing is certain now. The federal government’s mandate to salvage the economy will have to go well beyond saving banks and creating jobs. The root of the most severe part of the problem are much deeper than that.
Douglas A. McIntyre
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