06 Feb
Posted by Julia Redstone as Foreclosure Crisis
The engulfing foreclosure crisis in all the States of the U.S. nation has caused untold havoc to the real estate business in general and builders and promoters of properties in particular.
During the boom years, while newly built up homes and condos were selling like hot cakes in prime locations and most sought after areas of California, Florida, New York, Michigan, Texas and Washington, even the erstwhile slow business localities also picked up momentum in home selling. This created an abundance of construction work to be taken up by the builders. The home sellers had their asking price being accepted by the buyers in view of the demand and the builders got what they wanted in respect of their part in continued engagement on contracts and satisfactory remuneration also at that. The builders and promoters of housing projects of apartments and residential properties in all the States were contended with what they got and this scenario lasted for 5 continuous years from 2000 to 2005.
Then came the burst of the housing market bubble in the later part of 2005. Arising out of the credit-crunch in a weak economy, financial institutions found it hard to fund the construction projects in the first place. The lending spree of home loans had to be curtailed as another face of the credit squeeze and non-availability of funds. Added to this, home owners who had already borrowed money on adjustable rates of interest were amazed at the enhancement of their monthly installments owing to the re-set of the interest rates. A large number of home owners were left stranded in the midway, unable to cope up with the repayment installments which grew beyond their financial capacity.
The default by home owners of their mortgage loans warranted foreclosure activity by the lenders to get back their outstanding loan amounts. Thus a huge number of housing properties were listed for sale in distress as foreclosure properties of various stages – pre-foreclosure; actual foreclosure on public auction and repo homes repossessed by the lenders. This sudden influx of properties in the real estate market at a price which is a fraction of their value had a dramatic effect on home selling. There were no takers of the newly built homes by the builders and secondary homes even for the break-up cost of their construction.
Builders were the worst sufferers in the aftermath of the foreclosure crisis, apart from home sellers. Large unemployment of builders and their subordinates is putting up pressure on the economic front of the U.S. nation. The legislature is seized of the woes of builders in foreclosure and appropriate grievance redressal measures are on the anvil.