The New York Times today features a long article on banks holding about 872,000 foreclosed properties. Banks are in the process of foreclosing on another million homes and analysts expect banks to foreclose on several million homes in the next few years.
Banks don’t want to be in the real estate business and they lose an average of $20,000 on each foreclosed home. But if someone stops making their mortgage payments, what are they going to do?
Banks are sensitive to public relations issues. Some communities are particularly hard-hit by foreclosures.
Political pressure and paperwork processing issues have slowed the number of foreclosed homes brought to market.
Five years after the housing market started teetering, economists now worry that the rise in lender-owned homes could create another vicious circle, in which the growing inventory of distressed property further depresses home values and leads to even more distressed sales. With the spring home-selling season under way, real estate prices have been declining across the country in recent months.
“It remains a heavy weight on the banking system,” said Mark Zandi, the chief economist of Moody’s Analytics. “Housing prices are falling, and they are going to fall some more.”
Over all, economists project that it would take about three years for lenders to sell their backlog of foreclosed homes. As a result, home values nationally could fall 5 percent by the end of 2011, according to Moody’s, and rise only modestly over the following year. Regions that were hardest hit by the housing collapse and recession could take even longer to recover — dealing yet another blow to a still-struggling economy.