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Why the Foreclosure Crisis Won't End

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There's no turnaround in sight, and the market can't ignore that much longer.

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A lot of Americans returned home from summer vacation to find a padlock on the front door.

According to RealtyTrac, foreclosure filings -- default notices, scheduled auctions, and bank repossessions -- were reported on 358,471 US properties during the final month of summer. That was a decrease of less than 1% from July, but still an increase of nearly 18% from August 2008.

The report showed that one in every 357 US housing units received a foreclosure filing in August, demonstrating that there's still "an ample supply of properties filling the foreclosure pipeline," said RealtyTrac CEO James Saccacio.

The number of properties either entering default or being scheduled for a public foreclosure auction also hit a new record.

More than two years after the housing bubble began to deflate, there remains a foreclosure crisis in this country with seized properties now accounting for almost one in four home sales nationwide. The elevated rate of foreclosures will remain uncomfortably high as long as housing prices remain depressed and the unemployment rate shoots toward double digits. This could mean more pressure on an already rocked residential real estate market as more supply of homes is added to an already fat inventory overhang.

With one in every 62 housing units receiving a foreclosure filing in August, Nevada continued to document the nation's highest state foreclosure rate. Florida came in second with one in 140 housing units receiving a foreclosure filing. California took the bronze with one in 144.

Last year, an already thoroughly discouraging 2.3 million home owners filed for foreclosure, notes longtime market pro Dennis Gartman. "In the parlance of the world's technical traders, foreclosures filings have 'broken out' to the upside," Gartman wrote in a research note.

While there might be preliminary signs that the economy is turning the corner and we're likely to have positive growth this quarter, we're not yet seeing the follow through in terms of significantly looser housing credit or wage and income gains at the household level, says Deutsche Bank Senior US economist Carl Riccadonna.

"Until the labor market become more stable, the unemployment rate tops out, and we have some income generation, it will be hard for the rate of delinquencies in the housing market to stabilize or turn down," Riccadonna tells Minyanville.
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