Home foreclosures are climbing in the Northwest and Midwest, areas that had earlier dodged the worst of the mortgage crisis, according to real estate data firm RealtyTrac Inc. With 14.6 million Americans out of work and consumer spending declining, further weakness in housing could push the economy back into recession, former Federal Reserve Chairman Alan Greenspan said Aug. 1.

Foreclosure rates in Utah, Idaho, Illinois and Colorado rose in the second quarter compared with a year earlier, and rank among the 10 highest in the country. The number of homes seized by lenders at least doubled in 19 states and more than tripled in seven of them, according to Irvine, California-based RealtyTrac.

Later in Cycle
"The housing downturn started late in the Northwest and now it's ending late," said Mark Zandi, chief economist at Moody's Analytics in West Chester, Pennsylvania. Idaho, Oregon and Washington lagged behind the national cycle and will suffer declines after other areas stabilize, he said.

New defaults are declining and appear to have bottomed in states where the crisis began, falling 43 percent in California, 37 percent in Florida and 27 percent in Nevada in the second quarter from a year earlier, RealtyTrac's data show.

"The worst is over, but it's going to be a long road ahead," said economist Steven Frable at IHS Global Insight Inc. in Lexington, Massachusetts.

Eoin Treacy's view High unemployment and foreclosure rates have been crushing to investor sentiment since 2007 and many commentators continue to point to unemployment as the major missing ingredient in the USA's economic recovery, regardless of the fact that unemployment is a lagging indicator. On the housing front, the roll of ARM mortgages this year and next offers a significant headwind to a housing recovery.

Foreclosures have stabilised between 300,000 and 340,000 per month for more than 18 months which suggests that while the situation is dire, it has not been accelerating. Once these figures begin to trend downwards, we can probably conclude that the US housing market has turned the corner. However, recovery could still take years as the excess supply built during the boom is slowly sold off.

The US government is doing everything in its power to stabilise the housing market, not least buying US Treasuries and mortgage bonds. Freddie Mac 30yr mortgage rates are at historic lows of 4.4% and continue to trend lower. The spread of Fannie Mae bonds over the US 10yr is also close to historic lows at a mere 20 basis points. Affordability for 1st time buyers is also close to a record high. At some point these measures will gain traction.

In the meantime all of the additional stimulus pumped into the system is not just finding its way into the debt markets but is flowing to the most productive assets which remain those leveraged to global growth.