It's really no surprise that home prices measured by Standard & Poor's/Case-Shiller home price index of 20 cities fell at a record clip in February. We pretty much knew that was coming. We've read the economist predictions that it will be at least through this year before prices stabilize, if not longer (i.e. 2010). We can see the vacancies on our own streets, and the price cuts those homeowners are making to try to get their properties sold. We also know that there's been a spike in foreclosures over the past few years, though the figures I've researched say the spike isn't more alarming than ones we've had in decades past.
Then, I see this. As I'm watching CNN news this morning, up pops this television CG:
Can this chart be for real? One in 54 homes in Nevada is in some stage of foreclosure? I know that the average bank foreclosure process takes three to four months from the first late payment. I know that it can take a year or two after the bank initiates foreclosure that a house goes back on the market. I know that tax foreclosures can take years for being auctioned on the court house steps. Does all of this dragging on really account for numbers that are this alarming?
There wasn't any sourcing on the chart, so I start from scratch trying to track down where these figures come from. It turns out that the numbers come from RealtyTrac, a website that catalogs foreclosure sales nationwide and sells the details to subscribers. The numbers were compiled for RealtyTrac's Q1 2008 U.S. Foreclosure Market Report, summarized in this RealtyTrac press release: "Foreclosure filings - default notices, auction sale notices and bank repossessions - were reported on 649,917 properties during the first quarter, a 23 percent increase from the previous quarter and a 112 percent increase from the first quarter of 2007. The report also shows that one in every 194 U.S. households received a foreclosure filing during the quarter."
One in every 194 U.S. households? Really? I checked to see if RealtyTrac was errantly counting multiple filings on one property as multiple properties. There's the "Default" stage, where a Notice of Default (NOD) and Lis Pendens (LIS) are issued. There's the Auction, where a Notice of Trustee Sale (NTS) and Notice of Foreclosure Sale (NFS) are issued. And there's the Real-Estate Owned (REO) stage where the properties have been foreclosed on and repurchased by a bank. It turns out that RealtyTrac already checks for that: If more than one foreclosure document is filed against a property during the quarter only the most recent filing is counted in the report.
Next stop is to check to see if their numbers even add up. Are they factoring the correct amount of homes currently available? From 2004 to 2007, the Mortgage Bankers Association tabulated roughly 1.5 million new single-family homes built each year. Another 340,000 multi-family homes were built in each of the same three years. Let's see... That's 5.5 million new homes built in the past three years.
The last national census in the US was in 2000. That census showed 105.5 million households in the US. Add the census figure to the 5.5 million new homes built from 2004 to 2007, and add that to the 1.63 million new single-family and multi-family homes built each year from 2000 to 2004, and that brings the total to 117.52 million homes nationwide by the end of 2007. That's not even taking into account the fact that "multi-family" means room for more than one household.
Now, back to the RealtyTrac figures. Its report showed 649,917 properties with foreclosure action in the first quarter of 2008. Take 649,917 and divide it into 117,520,000 total homes and that's 0.05530267189 percent of the housing market, or one in about 194 homes. The RealtyTrac numbers appear to be on target, if their own tabulations of foreclosures is correct.
My head is starting to hurt, but in the interest of getting to the bottom line let's plow on. Next step: compare 2008's first quarter rate to previous highs.
The 1980s: From 1980 to 1989, an average 5.6 percent of mortgages went into delinquency according to the Mortgage Bankers Association's National Delinquency Survey. That's one in every 18 mortgages. To be sure, a delinquency doesn't mean foreclosure. It is, however, an indicator and one step toward it. Three months of delinquencies, and the foreclosure process is in full swing. Unlike the 1980s, foreclosed homes in good shape are selling for market rates -- so there's no bonus for real estate investors there.
The 1930s: Roughly 1 in 10 mortgages entered foreclosure in 1932 and 1933, according to Competitive Enterprise Institute's "The Subprime Crisis in Historical Perspective" report. In 1932, that translated to 2.4 million mortgages in some stage of the foreclosure process. Today, the numbers are 649,917 in the first quarter of 2008 and 2.7 million if the same rate of new foreclosure actions continues throughout the year. Yes, the 1932 was the height of the Great Depression -- not a good thing to 2008 comparisons. However, today there are tens if not hundreds of millions more homes on US soil than there were 75 years ago. "One should look at the number in the context of the overall economy and, relative to the overall economy, 2.[7] million foreclosures would not be a major calamity," writes Competitive Enterprise Institute researchers Eli Lehrer and Matthew Glans in their January 2008 report.
To be sure, while places like Nevada are hit hard by foreclosures, other areas are coming out strong, as shown later on this CNN chart:
I've provided a state-by-state RealtyTrac breakout for your review. Click to its two parts through the image tab above. How does your state stack up? (Incidentally, hotpads.com offers a handy graphic "heat map" of foreclosures for a quick look at your market.)
What does all of this say to you?
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Comments: 38
A house is NOT a surefire investment and in some areas of the country, over the long run, the value of a home goes up only 5 or 7 percent. That "value" has to be weighed against costs of home ownership, including home maintenance, real estate taxes, home insurance, etc.
If a person buys at the right time, hangs onto a home through good times and bad and manages to sell when prices are up, the benefits of home ownership can be great. But when tough times come, those who are barely getting by can be hard pressed to hang on long enough to benefit from home ownership. I really believe that renting has its benefits as well, although it doesn't provide the perceived value or sense of security as a home.
I'd love to see a breakdown of someone who rented and NEVER owned a home (but could have owned a home) and who put all the money that WOULD have gone into home maintenance, home insurance and real estate taxes into savings or stock instead. Would that person come out ahead over a home owner? I have no idea. Perhaps you do.
I don't live there.
California? That one's easy. Severe overvaluing of homes for the past 2 decades is finally coming home to roost. It's absolutely ridiculous to think that a home in San Francisco that's a little 2-bedroom cape cod style home goes for $500,000. That's severe overvaluing, and that balloon was going to pop all too soon.
Add to this volatile mix the juicy firestarters of out-of-control oil prices and add a primer of the sub-prime mortgage idiocy, and you've got a foreclosure firestorm.
Nothing to lose. Right?
Many of these borrowers took balloon or adjustable mortgage rates. Now that the rates have gone up along with the cost of living the borrowers now can not afford the 'new' mortgage rates.
Who's to blame - is the 'greedy lenders' who wanted to make a fast buck. Sorry it's true!
I understand the 'American dream' is to own your own home, but first you must learn how to manage credit, and have sufficent income...Many people live way beyond their means.
I know a person who has a pool business. They have told me they look in the no curtain/blind open windows of many of the homes (no one is home), to see no furniture in any of the rooms in these homes. Or there is lawn furniture in living room in front of a huge tv, card table & chairs in dining room, and matresses on the floor in bedrooms - huge amonuts of clothing is in closet or in boxes on the floor. These homes have anywhere from 3-6 'new-expsnsive' cars in driveway.
These people live around me also..only I love in a townhome, I have neighbors who have a SUV & two cars, card tables and lawn chairs in their home. I asked my neighbor why they have no firniture, yet I always see them shopping for new clothing, the woman always has designer clothing & handbags, her answer was "i like & need expensive things" so I guess furniture is not a need.
However, those who can afford to take a loss and downsize could end up buying a home at bargain rates that would soar in value once the worst of the recession is over...but who knows how long that would be? Real estate investors often gut it out, don't let emotions get in their way and ride out the highs and lows. A steady plan often works, having reserves on hand to handle downturns and sitting easy when times are better.
However, a deep recession might not let a plan like that work. I am NOT an economic expert but try to follow a course of no debt, living below our means, no mortgage, etc. I was raised by Depression era parents and it worked for them. I must be a creature of tradition, habit and a low comfort level with debt.
I completely agree Larry. That's a viewpoint I didn't discuss in this piece.
Thank you La Rue. I aim to please.... ; )
I gave a shout out to people to see your info (it wasn't in the Pantry Cooking article but in the one about food shortages or higher food costs or making ends meet, sorry, get my articles mixed up) Anyway, you commented on one of those and had a link but I thought it was getting lost in the comments that followed so I added an extra shout out. I think we all need to connect and share info when we can. :)
And yours is tops!
Here's what I do know, we have a populations of 55,000 people and there are 1,200 homes in foreclosure. We have so many vacant homes that there has been a huge run on copper pipe theft. I personally know 4 families who lost their homes.
Our main social service provided for our suburb is being overrun with requests for housing vouchers.
It's horrible.
Thank you Jo C. Much obliged. I checked out Rose H.'s content on your recommendation, and am enjoying her take on how to prepare for tough times ahead. Thank you for making the connection.
Love this column! I always read it, even if I don't have anything to say to contribute.
Sharon, it sounds like your Ohio community is going through a lot right now. One in 50 homes are in foreclosure. That's astronomical. I'm curious to hear from your standpoint: How has this foreclosure rate and the foreclosure processes on the four families you know impacted you personally? Any insight here would be greatly appreciated.
If there was no government intervention beyond what exists now, the bottom would be found, and recovered from, within another year or two, at most. What worries me about reports like this CNN story is that they inevitably goad lawmakers to "act." These actions, in the past, have almost invariably led to prolonging the economic pain, as well as causing new economic problems.
Great post, and I hope my rant wasn't too off-topic, but that's what this story said to me.
Nic and I have been sitting on a house we own in Tennessee for a few years now, burning a hole in our pocket. At one point my Mom and Grandmother actually said maybe we should just stop paying the mortgage and let it fall into foreclosure. I was shocked, especially because of who it was coming from. Are you serious? Needless to say we should have the house officially on the market within the next month or two. Even if it takes 2 years to sell, it won't be doing any more damage than it already has.
This is somewhat related to home foreclosures because the connection between property taxes and foreclosure can be critical. In fact, on NPR the other day they were talking about how some homes went into foreclosure because people couldn't pay their homeowners' association fees!
Anyway, our experience and national implications:
The Agony and Possible Ecstasy of Indiana Property Taxes and What All Homeowners Need to Know About Property Taxes in a Recession
Thank you Jo C. for the follow-up post. I'll definately check out your included link.
I saw this and just had to comment. This was just on the local news here in Pittsburgh as well about forclousers. We know about them first hand because my boysfriends daughter & her boyfriend were renting to own. So they thought. The landlord went backrupt and the house went to sherriffs sale. The bank got the house and Dave ended up buying it so they don't have to move etc. But it has been a nightmare for everyone. Now they say people are destroying the houses when they leave because they are so mad and angry it came to that. It showed people coming from other states buying up 10 - 20 homes at a time to rent out.
Thanks for posting this.