Economic Environment Not Ripe for Heavy Foreclosure Levels

Economics 201 – Inflation

In announcing his findings on the condition of the nation’s economy Wednesday, Chapman University President James L. Doti proclaimed that, in his opinion, the nation is not headed toward either a recession or a catastrophic volume of job losses – both of which were factors in the last great boom in foreclosure activity back in the early 1990s.

This time around, Doti believes the nation is not on the verge of economic turmoil, and the number of jobs being lost is negligible considering that the Chapman forecast calls for the number of jobs created in this country to continue growing, albeit at a slower rate than in the past. One thing that does concern him, however, as well as Fed Chairman Ben Bernanke, is a higher rate of inflation.

Although global market inflationary forces like rising oil prices, a 5 percent decline in the value of the U.S. dollar and an $800 billion U.S. trade deficit may not be concerns for real estate investors, first-time homebuyers and real estate agents eager to get into the foreclosure business, they're of major concern to the Federal Reserve, and putting big-time pressure on interest rates.

The hikes we’re continuing to see in the Federal Funds Rate should be a point of focus for those interested in dealing in foreclosures. The cost of borrowing money can determine whether or not the purchase of a foreclosure property pencils out in favor of a would-be buyer. And higher interest rates also tend to lead to higher numbers of foreclosure properties in the market.

Next time: housing appreciation and the effect of recently acquired household net wealth.