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Home prices expected to drop further, raising risk of strategic defaults on mortgages

[Dec 29, 2010.]


Housing markets are expected to get worse in 2011 before they begin to improve, according to a report from A. Gary Shilling & Co. Economists at the firm predicted in a newsletter that home prices would drop another 20 percent before starting to climb, according to a Housing Wire article.

More strategic defaults?

Shilling's economists also said that continuing price drops will raise the risk that borrowers will walk away from their mortgage loans. Strategic defaults have become more common as the housing market has struggled and homeowners look for ways to avoid foreclosure. Homeowners who are underwater, or owe more on a mortgage than their home is worth, are more likely to strategically default.

Data from the Standard & Poor's/Case-Shiller index indicate that home prices fell 1.3 percent in October from September. The index also shows that six of the 20 cities followed hit new lows since home prices began falling in 2006 and 2007. Those cities are Atlanta, Charlotte, Miami, Portland, Seattle and Tampa.

Housing supply is up

According to David M. Blitzer, Chairman of the Index Committee at Standard & Poor's:

The trends we have seen over the past few months have not changed. The tax incentives are over and the national economy remained lackluster in October, the month covered by these data. Existing homes sales and housing starts have been reported for both October and November, and neither is giving any sense of optimism. On a year-over-year basis, sales are down more than 25 percent and the months' supply of unsold homes is about 50 percent above where it was during the same months of last year. Housing starts are still hovering near 30-year lows. While delinquency rates might have seen some recent improvement, it is only on a relative basis. They are still well above their historic averages, in both the prime and sub-prime markets.

Get help with your mortgage loan

If you are a homeowner at risk of foreclosure, you should do whatever you can to find a good solution to your mortgage loan problems. Strategically defaulting isn't the best plan and would result in a huge hit to your credit rating, just as a foreclosure would. A housing counselor or your mortgage lender may be able to help you find an alternative to losing your home.


About Author:

Francine L. Huff is a freelance journalist and the author of The 25-Day Money Makeover for Women. She has appeared on a variety of TV and radio shows.

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