Tuesday, June 17, 2008

Foreclosures Rise 48% As Inflation Surges

US Home Foreclosures Rise 48% As Inflation Surges

By Suzy Jagger, Times Online, New York | 17 June 2008

Americans have not seen the worst of the housing crisis and must grow accustomed to surging inflation, one of Wall Street's leading economists warned today, as the US suffered the sharpest rise in foreclosures on record. Kevin Logan, chief economist at Dresdner Kleinwort, the investment bank in New York, predicted that inflation will continue to rise to as much as 5 per cent by August as food and fuel costs show no sign of slowing.

He also warned that house prices, construction activity and property sales may fall steeply until well into next year. His comments offer little comfort to American homeowners who last month suffered the sharpest rise in forclosures on record. At the same time, 'official' figures from Washington showed that the cost of living had risen by another 0.6 per cent compared with the month before, up to an annual rate of 4.2 per cent.

According to RealtyTrac, the US foreclosure monitor, the number of homeowners falling into serious arrears with their mortgage payments jumped by 48 per cent in May compared with the same period the year before. Last month, banks filed for foreclosure on 261,255 American homeowners, with one in every 483 households across the country having either lost or on the brink of losing their home. (While the rate of foreclosures in Ohio slowed slightly, the crisis deepened in states such as Nevada, California, Arizona, Florida and Michigan.)

In Nevada, one in every 118 households received a foreclosure-related notice last month, more than four times the national rate. In California, one in every 183 households faced foreclosure. The foreclosure process refers to any homeowner who is more than a month in arrears with mortgage repayments, but includes property owners who have been served a default notice, whose home has been repossessed by the bank, or whose property is about to be auctioned.

At the same time, while homeowners struggled to keep pace with their mortgage repayments, Americans also had to cope with the fastest increase in inflation since November. Food prices rose 0.3 per cent last month, while energy costs jumped 4.4 per cent over the same period. Rising inflation has applied pressure on the US Federal Reserve Bank to start increasing interest rates from current levels of 2 per cent in an attempt to stem prices. But Mr Logan concluded: "The probability has shifted yet again. In April, the Fed appeared to say that it had finished cutting rates and might soon raise them, if even by a token amount. Now the signal has changed. There are still real concerns about inflation. But I think the Fed will not move to raise rates until next year— it will not want to run the risk of tipping the economy into a more severe recession."



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