How Much Does Foreclosure Cost Banks and Society and You?
$70,000 is a lot of money. That’s the estimate for an average foreclosure when all costs are included. Foreclosed homes have been in the forefront of news media for sometime now. In my local market, the Daytona Beach real estate market, we have been very hard hit. There are a lot of reasons for so many homes in foreclosure, but the fact is that foreclosures are at historically high levels. What we wanted to know, ia exactly how much these foreclosed homes are costing banks, society and others.
There seems to be no definitive cost numbers of exactly how much an average foreclosure cost, but here is an often quoted number from 2007, “…According to mortgage financier Freddie Mac, the typical foreclosure cost is nearly $60,000…” -The Buffalo News, May 6, 2007.
The Michigan Municipal League provides the following information “Homeowners do have options if they find themselves in foreclosure. Foreclosure usually commences when a homeowner is 90 days or more past due on a mortgage payment. The good news from Greg Sterns, manager of financial education and counseling for Lighthouse Community Development, is that the housing counseling process does work. The average cost of helping a client avoid foreclosure through the Lighthouse program is $910. The average cost to society of a mortgage foreclosure is $22,330. The average cost to the investor is $50,000-60,000.”
Lawrence Summers says on the Financial Times web site, “Foreclosures are extremely costly. Between transaction costs that typically run at one-third or more of a home’s value and the adverse impact on neighbouring properties, foreclosures can easily dissipate more than the total value of the home being repossessed. They also inflict collateral economic damage, as reduced wealth and diminished borrowing capacity in homes reduces consumer spending, increases credit market fragility and depresses local tax bases.”
The national median price for US homes in about $200,000. That means, using median price, then $67,000 is the approximate number based on Mr. Summers statement.
Some of this cost is borne by the banks, some by the homeowner, some by neighbors and some by you. Taxing authorities that rely on real estate taxes will also be impacted for a long time into the future. The lost revenue will mean reduced services, lost government jobs, and higher taxes to make up the difference.
So, how much does foreclosure cost banks, society and you and me? The numbers are not clear, but appears to be about $70,000 for a $200,000 home. You are impacted by losses in the tax base, impact to home prices, and increases in government services and funding to people who lose their homes. You are further impacted by an home mortgage industry that has imposed severe credit restrictions making loans more difficult to obtain.
Regardless of how we look at, that’s a lot of money and we are all impacted. To learn more about foreclosures, check out Daytona Beach Foreclosed Homes. If you have questions, please call Lynn Byrne at 386-566-7503 or visit my Daytona Beach real estate website.