The downward spiral of consumer, business and banking confidence, fueled by the foreclosure crisis, has sent home values to new lows. Rick Sharga, VP of Marketing at RealtyTrac, said in July; “Foreclosure activity is the highest since the Great Depression of the 1930s.”

Headlines fill the pages of newspapers daily. “10,000 homes foreclosed on each day,” glared The Economist in August 2008. “Home foreclosures up 430%” screamed the Tucson Citizen on May 8th. Economist.com wrote on February 28th, “…brick-fronted townhouses…of northern Virginia…are now worth some 40% less….Foreclosures are rising.”

The reasons for the increasing number of foreclosures have been uniformly agreed too. Reporter Les Christie of CNN wrote on October 10th, “…couples back out of deals [because they think] they can get a better deal, so they decide to wait….forcing prices down further." On October 14th he wrote a follow-up article “Home prices plummet.”

The Vicious Cycle

An over-supply of homes combined with the myth of home ownership was all that was needed to initiate foreclosures on many sub-prime mortgage holders, over-stretched owners and speculators. Their failures in turn became the spark that commenced the negative equity cycle. Dropping home values placed other owners and institutions in crises situations which in turn produced additional foreclosures. The circle was complete!

Homes and Households

According to the U.S. Census Bureau’s Housing and Homeownership Data (CPS/HVS) for the second quarter of 2008, there are 129,871,000 total housing units in the USA. Of this 85.6% are occupied but only 58.3% of the total units are owner occupied.

Also, the latest U.S. Census Bureau’s Household Data (released in May 1996) has projections that extend through 2010. For the year 2008 the census models have three projections (112,362,848; 111,833,083 and 111,161,226) as the total number of USA households.

This Census data definitively shows that there are between 1.75 and 1.87 million more homes in the USA than households to fill them. The housing surplus part of the equation, now in place, initiated the halt to home equity increases.