Rise in Home Values Keeps Foreclosures in Check

Economics 301 – Home Price Appreciation and Household Net Wealth

According to the Business & Economic Review June 2006 released last week by the A. Gary Anderson Center for Economic Research at Chapman University, home price appreciation on the national level has been virtually unstoppable since 1980. Reaching a double-digit peak above 14 percent before dropping back to 9 percent over the past six months, the rate of price appreciation is still more than double the norm (4 percent) for the nation over time.

Relying on their economic model, forecasters at Chapman are calling a further retreat in the national rate, however, back to a 5.5 percent rate of appreciation by the end of 2007, still above the national norm, and still a positive sign that the economy is holding its own.

While this is good news for anyone who owns a home, there is a potential downside to this forecast for anyone interested in foreclosure property. And it is one of the reasons that foreclosure activity is expected to remain at a slow upward rate of increase, as evidenced by the latest national numbers reported by RealtyTrac for May 2006.

The run-up in home prices has resulted in a windfall to homeowners - their “household net wealth,” as the forecasters at Chapman call it, has grown by 36 percent in just three years – from $39 trillion at the beginning of 2003 to $53 trillion at the end of 2005. So anyone who has owned a home for more than two years may have a pool of money that can be used to make emergency mortgage payments – thus keeping their home out of the foreclosure pipeline, says Esmael Adibi, executive director of the Anderson Center. If Adibi is right, the pool of potential properties entering into the foreclosure pipeline could shrink. So for at least for the foreseeable future the stock of available foreclosures may remain relatively stable.

This means that invstors or home buyers looking for foreclosure properties will have to remain vigilant, and pursue opportunities quickly and proactively. They may also want to consider expanding their search area beyond current parameters to increase the number of potential properties.

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