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Is The Foreclosure Crisis Over?

With the collapse of the auto bailout and economists warning that the worst is yet to come, two recent reports would seem to make housing the relative bright spot on the horizon: RealtyTrac reports that foreclosures were down 7 percent between October and November, while reports a slightly less reduction. Alexis McGee, president of, is all sun and roses: “In 2009, housing will not only recover, but we'll see buyers leap into this market in droves, depleting our housing oversupply, and actually put higher price pressures on the market.”

But Kelly Kurran of (an indispensable source for housing-crisis news) isn’t so sure. As she points out, foreclosures may be down slightly, but the pre-foreclosure average—i.e., people who have received notice of mortgage default or foreclosure auction, but haven’t yet completed the process—is up 5.57 percent for the same one-month period.

The spread between the two is likely the result of banks ramping up efforts to keep homeowners afloat. But with foreclosure rates on modified mortgages reaching 50 percent, according to the Mortgage Bankers Association (MBA), those efforts are unlikely to produce lasting results. The problem, according to the association, is that the housing bubble burst was initially because there were too many houses and too easy credit. But now, with the recession hitting hard, the cause is shifting to job losses. Over the last year the two states at the top of the bubble, Florida and California, lost 156,200 and 101,300 jobs, respectively. Combine those with the consensus expectation that the bubble still has further to deflate, and the housing crisis is set to get a lot worse before it gets better. And that, of course, is the root of the entire problem: Weaknesses in the mortgage market scare banks, who cut back on lending; without credit (or consumers buying their products), companies cut back on hiring or go under; job cuts lead to further housing losses. Rinse and repeat. And run.

--Clay Risen