Foreclosure Heat

Posted by: Chris Palmeri on June 12, 2007

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The latest data for RealtyTrac shows a sharp jump in foreclosure activity, up 19% in May from the previous month and nearly twice the number of May 2006. Sad news for the 171,000 U.S. homeowners who received default notices or other foreclosure-related filings last month.

There’s been some debate in the real estate industry as to what the data tells us. Has a bubble burst, as most people suspect? Are toxic, adjustable-rate mortgages taking their toll on speculators and others who overextended themselves in boom markets? Or is the data just a reflection of continuing tough times in rust belt states such as Illinois, Michigan and Ohio where folks are losing their jobs due to globalization. All three of those states appear among the top ten in terms of percentage of homes in foreclosure.

Drilling down deeper, even California, home to the largest number of foreclosure filings, suggest that those in trouble aren’t mansion-flippers in Beverly Hills, but blue collar folks in agricultural-dependent communities such as Merced, Stockton, Modesto and Riverside.

Alas, it’s not that easy. As the “heat map” provided by Realtytrac shows, once-booming markets such Arizona, Florida, Texas and Nevada are showing a lot of red—meaning a higher percentage of homes in the foreclosure process. The realty reality is that the farmers in Modesto can be in trouble as well as the speculators buying condos in Miami, Phoenix and Las Vegas. A slowing market impacts all.

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Reader Comments

rich

June 12, 2007 02:24 PM

There are two questions to ask in any foreclosure. 1) Can you afford to pay? 2) Do you want to pay? Always before, it has been the first question that has driven foreclosures. The stigma of losing a house was too great to CHOOSE not to pay, even if high payments meant ongoing financial hardship. That stigma is now gone for several reasons.

Many people were buying second homes, not primary residences. They were just buying investments, and 100% mortgages gave them a cheap put. As foreclosures become epidemic, the stigma grows less. Foreclosure is almost a club.

But what everybody is missing is the fact that so many American consumers are just plain tapped out with total household debt. Some people would rather keep their credit cards and cars than their homes. It's a lifestyle choice, a personal triage.

And it's going to be a historic financial nightmare for mortgage lenders and debt holders. Their models never accounted for the "foreclosure lifestyle choice."

P.S. Foreclosure is a lot like going into a debtors' AA program. You lose your good credit. But if you are a debtaholic, that may be a good thing in some people's minds.

Chris

June 17, 2007 12:55 AM

'A home is a mans castle'. Credit cards and cars are all a drain on ones expenses, but a house can be lived in or rented or usually sold for more that it was bought for so whats the smart thing to do? hold on to that house unless your a Hollywood star in the making then i guess living in the car is an option!

D. Fault

June 17, 2007 08:19 AM

Not to worry about Florida! The builders and realtors
have lobbied and the legislature just passed sweeping
cuts in property taxes. We just got more affordable, at
least at the beginning of the loan. But what the hell, no
one but a sucker stays in this state for more than a
few years.

Thank you for your interest. This blog is no longer active.

 

About

BusinessWeek editors Chris Palmeri, Prashant Gopal and Peter Coy chronicle the highs and lows of the housing and mortgage markets on their Hot Property blog. In print and online, the Hot Property team first wrote about the potential downside of lenders pushing riskier, "option ARM" mortgages and the rise in mortgage fraud back in 2005—well ahead of many other media outlets. In 2008, Hot Property bloggers finished #1 in a ranking of the world's top 100 "most powerful property people" by the British real estate website Global edge. Hot Property was named among the 25 most influential real estate blogs of 2007 by Inman News.

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