Monday, February 23, 2009

'The Foreclosure Five'

Very interesting article appeared over the weekend at the NY Post. While foreclosure mania is covered by the national media at will, this article breaks the data down to show -- what I have suspected for quite some time -- that the problems are local more so than national.

Of course Kingman is in what I call the ground zero area of foreclosures. Right in between Phoenix and Las Vegas and awfully close to California to boot. The article identifies Arizona, Nevada, California, Florida, and Michigan as the 'foreclosure five' states of the union.

Please read the whole article linked above, I'm going to cut and paste a few bits from the article below...

The beneficiaries of taxpayer charity will be highly concentrated in just five states - California, Nevada, Arizona, Florida and Michigan. That is not because the subsidized homeowners are poor (Californians with $700,000 mortgages are not poor), but because they took on too much debt, often by refinancing in risky ways to "cash out" thousands more than the original loan. Nearly all subprime loans were for refinancing, not buying a home.

I know that folks used sub-prime loans to buy homes too during the boom years, but I've never really had a grasp on how many loans were made for 'cash out' purposes. Data like that is not something I have access to (or know where to find it).

Nationwide, foreclosures fell 10% in January, to one out of every 466 homes. But that is a "mean" average dominated by places like California and Florida. In the median state with the 25th highest foreclosure rate, by contrast, only one out of 949 homes was in foreclosure - just one-tenth of 1%. Foreclosure rates were even lower in 25 other states. In Vermont, foreclosures amounted to just one out of 51,906 homes. Foreclosure can be a personal crisis, but it is not a national crisis.

Well stated.

So what's happening now? By looking at sales, you can see the free market is working very well. Sales of existing homes over the past year have soared in four states where home prices fell the most. Reducing the inventory of unsold homes, foreclosed or not, makes it easier to sell remaining homes and thereby works to arrest falling home prices. Falling home prices are not the problem, they're the solution.

Been saying that if sellers want to sell their prices need to be market to the current market, been saying it for a long time now. In fact, I will always say it -- because it is true.

Looking at the Foreclosure Five, you find another consistency - unemployment rates far above the national average (half the states were below 5.9% in December).

The exception is Arizona, where unemployment is a more reasonable 6.9%. Stephen Miller of the University of Nevada and Rangan Gupta of the University of Pretoria explained the apparent anomaly by explaining that migration and the market for second homes make Phoenix housing dependent on economic conditions in Los Angeles and Las Vegas. Miller and Gupta found that "Los Angeles housing prices cause housing prices in Las Vegas (directly) and Phoenix (indirectly). In addition, Las Vegas housing prices cause housing prices in Phoenix" to rise or fall in step.

Interesting theory there.

In reality, the "Homeowner Affordability and Stability Plan" compels taxpayers in most states to help those in just a few. Aside from Michigan's unique dependence on autos, the other four states' problems are already being solved the old-fashioned way: If something becomes too expensive, cut the price. Or move.


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