PATCHWORK NATION -- May 13, 2011 at 11:49 AM ET
Foreclosures Are Down. How Is That Bad News?
Looking at the housing market is enough to give anyone a serious dose of cognitive dissonance. Take the April foreclosure numbers.
The data, just released this week from RealtyTrac, shows what could only be labeled, at first blush anyway, as a major improvement. The figures were down 9 percent from March and 34 percent from April 2010. Foreclosure activity is at a 40-month low. Can an economic turnaround be far behind?
But home sales and construction are non-starters. That entire sector of the economy seems, at the moment, to be frozen. What's going on?
Foreclosures, ultimately, are processes started by banks when they are dealing with severely delinquent home loans. It's up to the banks to get them started, and right now they simply seem less interested in that option. Why? The robo-signing problem, where thousands of homeowners were pushed into foreclosure without the proper processes, is part of it.
But another reason, says Rick Sharga, senior vice president at RealtyTrac, may be that banks don't want any more bad loans on their books. They are inundated with foreclosures and simply can't process anymore now. So they have tens of thousands of delinquent loans on their books that they are not yet pushing forward.
And that may have serious implications for the coming 2012 presidential race, and for the broader economy as whole.
Through the Patchwork Lens
It's impossible to know exactly where all those delinquent loans are. Until the banks file notices on them, they are potemkin properties. Everything looks fine on the surface -- the residents are still there and there is no notice on the door -- but look a little closer and there are serious problems.
And while we can't pinpoint the location of those homes, from its running analysis of foreclosures, Patchwork Nation can assume with a reasonable amount of certainty that they are based in three of our county types: the Boom Towns, that prospered in the housing gold rush, the wealthy Monied Burbs, and the Industrial Metropolis big city counties.
Those three county types not only hold the most people, about 190 million, they've also seen the biggest spikes in foreclosure activity since the housing crunch began.
The Boom Towns, which hold some 60 million people, have been hit hard by foreclosures. Between April of 2007 and April of 2011, Eagle County, a Boom Town in Colorado, saw its foreclosures go from 1 to 65. The Monied Burbs also saw big increases in that time period. Hillsborough, a Monied Burb in New Hampshire, saw its foreclosures climb from 121 to 275 in that period.
You can also assume that the small town Service Worker Centers, which hold another 30 million, are well-represented in the overdue-but-not-yet-in-foreclosure category. Lincoln County, a Service Worker Center in Oregon, went from five properties in foreclosure in April of 2007 to 35 in April of 2011.
Good News For 2012?
It's hard to frame any of that as "good news," per se. Many of those properties are well over 90 days late on their mortgage payments, and the owners will probably never catch up.
But if you are in the Obama White House, there may be a silver lining to these numbers. So much of the economy is driven by emotion, how people "feel" about their situation. And having fewer homes out there in foreclosure is likely to make people feel a little better about things in a 2012 election that is likely to be driven heavily by the economy.
In the simplest terms, those who are behind in their payments but not in foreclosure still have a roof over their heads. And their entire community is likely to feel a little better about itself. Many in the community may be "upside down" in their homes -- owing more than their home is worth -- but at least they are not seeing bank notices on the houses around them. After some very hard years, that may qualify as improvement to some voters.
And that is particularly important in the swing-voting Monied Burb counties, but also in the Boom Towns and Service Worker Centers. Those counties tend to vote Republican, but then-candidate Barack Obama did fairly well in them in 2008.
And if the glutted foreclosure market may holds one truly positive point, says Sharga, it may be that we are finally near or at bottom in the housing mess. The fact that banks are looking for other options besides foreclosure means they may at least have a handle on the size of the problem.
The downside, he says, is that the slow drip, drip, drip of the foreclosure mess and counties full of potemkin properties mean the sluggish housing market isn't going to go away.
All those people behind in their loans can't move. Their neighbors, who are upside down in their homes because of lower values, can't either. Add in the fact that getting a home loan is getting tougher to get, and it's hard to see home construction coming back anytime soon.
And that means that, even if we are near bottom of the housing crunch, we may be bumping along there for some time.