How Bank Foreclosure Listing Grew

The growth in bank foreclosure listing that started in 2006 did not happen overnight. It was brought about by a series of events that eventually led to the subprime crisis of 2007-2008. The US economy started to tank by then. Housing bubble The US housing bubble peaked in 2005-2006 as market values of real estate properties continued to escalate with the number of home buyers that kept inflating prices. This buying and borrowing frenzy was fuelled by easy credit terms and the high level of cash flooding the market that pushed banks to be aggressive in pursuing potential borrowers. The demand for housing was also fueled by the mindset that a house was perceived a safe investment, thus, it is alright to borrow without much regard to the long-term financial capacity of the borrower. Borrowers banked on the hopes that the value of the property being bought will rise over time. There is also the cultural pressure for home ownership. This demand then fired up developers, causing them to overbuild and eventually causing a supply glut in the market. Mortgage problems Home prices descended after the middle of 2006 and refinancing homes became difficult. Adjustable mortgage rates then began to climb, making it more difficult for borrowers to pay for their mortgages. When they could not pay for their loans, the banks moved in to take back their homes. This is when the bank foreclosure listing started to grow. Together with the increase in defaults, the easy initial terms started to dwindle and the prices of houses continued to drop. Because home prices became less than the worth of their mortgage, homeowners had no choice but to enter foreclosure. Increase of houses in the market As the number of houses that were still about to be sold (as a result of overbuilding) grew, so did the number of those in the bank foreclosure listing. This oversupply drove down the prices of homes in the market where there was already a dearth of buyers. No takers meant banks could not liquidate these nonperforming assets. This then reduced the banks to have enough capital to lend to those who needed to borrow, which resulted to the credit squeeze or credit crisis.