Homes Go for £800 As Tide of Foreclosures Ends American Dream for Millions

It doesn't cost much to snap up a house these days in the down-at-heel motor city of Detroit. Agents advertise two-bedroom properties for as little as $1,500 (£800). "It's a phenomenon that's unreal that's going on at the moment," said Lolita Haley, owner of Prime Financial Plus Realty in suburban Detroit. "Foreclosed homes are constantly coming on to the market."

In cities throughout America's heartland, the crisis-stricken housing market is worsening by the day as struggling families abandon property because they are unable to keep up mortgage payments.

Some 6.41% of US home loans are in arrears - the highest figure since records began in 1979 - according to the Mortgage Bankers Association. More than 2 million Americans lost their homes to foreclosure last year and the figure is set to be far higher in 2008. Last month alone, repossession papers were filed on 303,879 properties.

As politicians in Congress thrashed out the details of the Bush administration's $700bn bailout plan for the banking industry, homeowners protested outside congressional offices yesterday.

The Neighborhood Assistance Corporation of America, which helps people to negotiate with lenders, has derided the rescue package as the "leave no banker behind" plan, and is demanding a moratorium on repossessions.

"Washington is about to reward Wall Street and predatory lenders for their greed and irresponsible lending tactics which created the mortgage crisis," said Naca's chief executive, Bruce Marks. "We cannot let this pass without help for the millions of homeowners at risk of foreclosures."

The worst-hit regions in the crisis fall into two categories. There are states that were already economically deprived, such as Mississippi, Michigan and Ohio, where job losses have made it tough for people to keep up mortgage repayments. Then there are relatively well-off areas in Florida, Nevada and California where a particularly aggressive housing boom collapsed catastrophically, leaving millions of people with mortgages far higher than the value of their homes.

In several cities, foreclosure bus tours do a steady trade, taking sightseers and potential investors to gawp at bank-owned properties. A Boston estate agent, John Pace, operates a bus tour every other weekend. "It's a tough situation. You'd rather see someone living in these houses than them vacant," he said.

In parts of California, more than half of all home sales are of bank-owned property. East of San Francisco, the city of Stockton has the highest foreclosure rate in the US. City authorities are struggling to cope with vandalism and neglect, as hundreds of homes are abandoned every month.

There are fears that the West Nile virus could spread aggressively as mosquitoes breed in the stagnant water of swimming pools at bank-owned homes. In San Diego, pest control officers have seen a surge in calls to deal with bees and wasps which are nesting undisturbed in vacant houses.

One sign of hope, according to some, is that the monthly increase in foreclosures has slowed. Filings last month were only up 27% year-on-year, compared with rises of 60% to 65% in previous months, said RealtyTrac, which compiles a national database. But the fall is largely due to legislation in many states which has made eviction a longer process, rather than any reflection of a genuine market improvement. In worst-hit regions, courts are struggling to keep up with a backlog of foreclosure paperwork.

Those on the ground doubt that the Bush administration's banking bailout will chime agreeably with struggling families. Drew Sygit, a property consultant at The Lending Edge in Detroit, said: "I don't know if anyone in the Detroit area cares, or can see that this package is supposed to be in their best interests. For many people, it's a case of, 'Hey, I lost my house and some of the people who put us in this situation are being bailed out'," he said.