Page last updated at 09:02 GMT, Tuesday, 27 May 2008 10:02 UK

Neighbours hit by empty homes next door

By Michelle Fleury
Business reporter, BBC News, New York

After years of aggressive lending and borrowing, America's housing bubble has burst.

A boarded up house
Empty houses are depressing prices for neighbouring properties

In its wake, house prices have started to drop, making it harder to establish a value for homes and leaving many families in financial difficulties.

The housing crisis in the US is at the heart of the world financial crisis, where banks packaged up bad loans and sold them around the world.

The depression in the housing market is having huge ramifications for the US economy, with many predicting that it will fall into recession this year, despite big cuts in interest rates by the central bank, the Federal Reserve.

Sharp end

That is bad news not just for the US but the world economy, which is predicted to slow sharply.

At the sharp end of the problem are millions of US families who are losing their homes after taking out mortgages, the interest payments on which rose sharply after an "introductory" rate expired.

Devon Honeyghan
At some point I'll have to make a decision, I will have to, and that could mean just cutting and go
Devon Honeyghan

The wave of foreclosures is further depressing the housing market and blighting neighbourhoods, with nearly a year's supply of unsold homes now on the market.

While politicians debate how to help those facing the loss of their home, there has so far been little help available for those in acute need.

Across the United States, there were 243,353 foreclosure filings in April alone, according to RealtyTrac.

Foreclosures hit neighbourhoods

The knock-on effects of rising foreclosures on the finance industry has been well documented, but its most recent victims are people living on streets with abandoned homes.

Devon Honeyghan lives with his family in the Bronx, in a neighbourhood hard hit by the mortgage foreclosure crisis.

He wants to sell up and move to Georgia where he's bought a new house. But with several empty homes and properties for sales on his street, he is worried he will not make his money back.

"I'm still trying to hold on to see how far I can hold onto it", he says, "but at some point I'll have to make a decision, I will have to, and that could mean just cutting and go".

Statistics from the Center for Responsible Lending show that the value of nearly 400,000 homes in the Bronx has dropped $4.9bn (2.5bn) because of surrounding foreclosed homes.

And it's not just in neighbourhoods where foreclosures are high that property values are falling.

Price declines

Armed with the tools of his trade, a tape measure and a clipboard, Chris Otteau looks at a house in Matawan, New Jersey.

As part of his job as a real estate appraiser, he has become accustomed to delivering bad news to people.

"We still come in below their expectations typically," he says, "because most people always feel that their home is of course special and may be untouched from the market. But that's not the case."

Prior to 2005, it was a very different picture as people got used to ever-increasing prices.

In his view, what changed was that the typical home mortgage and the typical salary ceased to match up.

"Salaries were rising at a slower rate than home prices, which caused the average home to be unaffordable and unobtainable for the average person," Mr Otteau says.

Now a reversal is underway and demand is weak.

In New Jersey where he works, Chris Otteau has seen house prices drop 15% from their peak.

A growing number of unsold homes around the country means the downward pressure on prices is not likely to go away.


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