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Sharp Spike in Home Foreclosures in 2016

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What’s the outlook for the U.S. housing market in 2017? Experts have talked about the possibility of another foreclosure crisis on the horizon. When exactly this will happen remains to be seen, but in the meantime there are some rather disturbing trends looming. Towards the end of 2016, foreclosures went up dramatically. Is this a harbinger of the next housing crash? Only time will tell.

The Foreclosure Trend

In September the foreclosure rate reached a 10-year low. Then October saw a sudden spike of 27%. One housing unit in 1,258 nationwide had a foreclosure filing, and the rates went up in 28 different states, as well as in Washington D.C. In Colorado, they rose by a staggering 64%. The worst jump was in Delaware, with a rate of one filing out of 355 units.  Overall, it represents the biggest monthly increase since the housing crisis in 2008.

What’s Behind the Trend?

There are a number of possible reasons for this sudden increase in foreclosures. Some are speculating it’s still part of a ripple effect from the 2008 crisis. However, it’s important to note that most of the home loans that are being defaulted on were acquired in 2009 or later—after the risky behaviors that caused the initial crash had ostensibly stopped.

On the other hand, the crash may have given way to a different set of risky behaviors. In order to keep the market afloat post-crisis, the Federal Housing Administration (FHA) encouraged new mortgages by offering low down payments for those who might otherwise struggle to afford a loan. Now, it seems that many of those homes are the ones being foreclosed upon.

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Some industry insiders insist this spike doesn’t necessarily indicate a cause for panic. Marina Walsh of the Mortgage Bankers Association sees it as a seasonal trend. According to data accumulated over the last three years, it seems that the third quarter sees the most foreclosures taking place. The stock market also typically declines around the same period.

So What Does This Mean?

Is this jump in foreclosures merely a temporary trend, or does it signify a bigger crisis to come? It’s difficult to know for sure. Things aren’t spiraling out of control just yet, particularly since the rates are still fairly low. Even so, a 27% rise in one month can’t simply be dismissed out of hand. The fact remains it’s the largest month-to-month increase since August of 2007.

Compared to months prior, bank repossessions have grown, as well as auction notices. This may not automatically mean another housing crash, but it does indicate an increase in risk. The market still hasn’t quite recovered, and mortgages are not the safest investment. Furthermore, if property investment is part of your retirement plan, it might be wise to rethink your strategy.  Even in a rock-solid market, real estate isn’t the most liquid of assets.  You might want to consider a different safe haven tangible asset to preserve your nest egg. It’s a very precarious time, both for lenders and borrowers. Exercise caution.

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