Given the extraordinary gains in home prices in recent years, the fact that inventories, vacancies, and delinquencies are at or near record levels, purchase-contract cancellation rates are still outpacing sales at many new home builders, housing completions have only just begun to level off, and a large segment of prospective home buyers -- those categorized as subprime -- will find it difficult, if not impossible to obtain mortgage financing under new, more restrictive guidelines and difficult market conditions, then the view that "average home prices will remain about level...over the next five years" seems totally unrealistic. But that's not all.
The projections include only foreclosures expected to result from jumps in interest rates that occur when loans "reset" from their initial interest rate to a higher one, usually after two to five years. They don't take into account foreclosures that will occur for such reasons as job losses, deaths, divorces, illness or fraud.
With myriad indicators pointing to an imminent recession, and a sharp increase in newsflow suggesting that the housing bubble has been accompanied by a substantial measure of fraud, then these so-called exceptions may, in fact, boost the overall level of foreclosures well beyond the supposedly worst case scenario.
