Is the housing market bottoming out?

Wisconsin mortgage foreclosure filings continue at "escalated levels," according to newly released data compiled by ForeclosuresWI.com, a leading provider of Wisconsin foreclosure resources and statistics. Wisconsin foreclosures have spiked 70 percent over the last three years (from 12,311 in 2005 to 20,995 in 2007), and the first four months of 2008 are showing no signs of improvement. The number of Wisconsin foreclosures in April 2008 grew to 2,103 homes, up more than 40 percent from the total in April 2007.

"We expect foreclosures to remain at escalated levels through 2008, with some experts not predicting a housing market recovery until at least 2010," said Robert Jansen, president of ForeclosuresWI.com. Milwaukee County has the most foreclosures in the state in April, up 42 percent from a year ago. Jansen sees several factors driving the skyrocketing foreclosure rates. "Consistent with the record number of mortgage defaults nationwide, a mix of adjustable rate mortgage resets, a soft housing market, and the collapse of the subprime mortgage market, have forced many more homeowners into foreclosure," Jansen said. "Adjustable-rate and exotic/subprime mortgage rate resets continue to result in significant increases to many homeowners’ monthly mortgage payments. Furthermore, the deteriorating housing market and flood of foreclosures has made it more difficult for those facing financial trouble to quickly sell their home to avoid foreclosure. Compounding the issue, many lenders have tightened lending standards in the wake of subprime mortgage crisis and skyrocketing mortgage defaults, which eliminates many refinancing options for those in trouble."

Although foreclosures remain high, Lawrence Yun, chief economist for the National Association of Realtors (NAR), believes the housing market is poised to rebound in the second half of the year. Speaking at the NAR Midyear Legislative Meetings & Trade Expo recently, Yun said "middle-America" cities that performed evenly over the past few years, such as Milwaukee, Cincinnati and Kansas City, Mo., are likely to experience home price gains in the 20 to 30 percent range over the next five years. Markets such as Miami, Las Vegas and Phoenix could see prices go up as much as 50 percent during that time period, Yun said.

Yun blamed most of the softening of the housing market over the last year on the "subprime mess," where consumers with blemished credit records received loans they could not afford when the interest rates reset to higher levels. "In fact, if you look at where home prices fell the most, it’s the markets where subprime loans were prevalent," Yun said.

Now that the subprime market has dried up, and loans insured by the Federal Housing Administration and those purchased by Fannie Mae and Freddie Mac are making a comeback, the housing markets will strengthen and prices are likely to begin a steady uptick in the coming months, Yun said.

Yun urged the Congress and White House to enact NAR-supported legislation to modernize FHA programs, reform regulation of the government-sponsored enterprises (Fannie Mae and Freddie Mac), establish a first-time home buyer tax credit and make the temporary increases to the conforming loan limits established by the Economic Stimulus Act of 2008 permanent.

"These measures would quickly stabilize the housing markets and get fence-sitters into the market to buy homes," Yun said. "There are many reasons for people to get into the housing market today, and very few reasons not to. With the plentiful supply of homes for sale at affordable prices, interest rates approaching 40-year lows, and the strong track record of housing as a good long-term investment, conditions are ripe for buyers," he added. "Those are the facts, plain and simple."

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