The Idaho Business Review reported on Wednesday that default filings remained high in June in Ada and Canyon counties after declining in May. IdahoDataProviders.com who published the report had viewed Mays decline as a positive sign for the local real estate. But they stated in their newly published release that foreclosure filings for June are back up to previous levels, continuing the trend of steadily increasing foreclosures supporting their position that the number of Idaho homes entering into foreclosure will continue to climb for the rest of 2008.
Does This Constitute a Crisis?
I guess that depends on your perspective. If you are a homeowner faced with losing your home and all of the implications that a short sale or foreclosure will have on your future ability to obtain credit, the answer is yes. Or if you are a lender faced with a rising number of non-performing loans, the answer is probably yes.
But a close examination of the facts shows that for most of Ada and Canyon county and for much of the country, there is no foreclosure crisis. Certainly there is no question that rising foreclosure rates are a serious problem. Nationally, the Mortgage Bankers Association’s latest survey shows that more than 1 million homes are now in foreclosure and that the national foreclosure rate stands at a record high of 2.5 percent. But the Mortgage Bankers Association’s data shows that most foreclosures are concentrated in the once super-heated markets in four states: California, Florida, Arizona and Nevada. In fact, these four states account for 42 percent of all foreclosures nationwide and 89 percent of the total increase in new home foreclosures according to MBA’s 2008 first quarter data. The MBA further notes that 20 states reported declines in the number of foreclosures started during this period, including Michigan, Ohio and Indiana where problems have been the most severe in recent years.
But it’s also important to remember that 37 percent of all single-family homes in the United States are owned debt-free – without any mortgage – and that home owners nationwide have built up $9 trillion in equity that provides a good cushion against any decline in values. The MBA report also shows that the vast majority of American home owners who do have mortgages are making their mortgage payments on time. If fact, more than 96 percent of prime borrowers – the bulk of the mortgage market - are up-to-date on their payments. The problem is in the subprime market. Nationally, about 19 percent of subprime borrowers are behind on their mortgage payments.
It’s also important to note that a high percentage of foreclosed loans to date – particularly in California, Arizona, Nevada and Florida – have been among speculators or investors who were looking for quick profits and just walked away from their investments when the housing market cooled. Do you remember when Boise was being touted in national publications as a great place to invest in real estate? I can’t help but wonder how many of the short sales and foreclosures in Ada and Canyon counties involve speculators or investors who were looking for quick profits. I do know that of the 5,080 active listings in the MLS as of the end of June, 775 or approximately 15% were listed as New Never Occupied, only 121 or approximately 2.4% are less than I year old, 1,328 or approximately 26% are between 1 and 5 years old, and approximately 50% of the 5,080 active listing are currently vacant. I also know that when the speculators converged on Boise and began contacting home builders with offers to buy all our existing inventory – completed or under construction, most builders and developers declined. We didn’t want to be competing against these investors for home buyers in the future. Many developments actually placed owner-occupancy deed restrictions on their new home sales. As a result, the only option for most speculators or investors was to purchase existing homes. Although there doesn’t seem to be any hard data to support my theory, I suspect based on the available data, that the incongruent number of 1-5 year old homes and the increases in short sales and foreclosures we are experiencing locally is attributable in large part to speculators – many of whom purchased their “investments” with subprime mortgages.
So in my opinion, while there is a serious problem, I don't believe it constitutes a crisis.
In my next blog, I’ll talk a bit more about the problem and what I believe can be done to address it.
Chuck Miller GMB CGB MIRM CMP MCSP CSP
President / Builder – Chuck Miller Construction Inc.
(208) 229-2553