Foreclosures, Delinquencies Reach Highs--Salt Lake City Focus

It's got to get worse before it will get better...It's cliche, but in our housing market all too true. For some time I've thought and been writing about two possible outcomes in the Salt Lake City market. Either we grow our way out of our slow down, or prices drop dramatically from recent levels.

Growth does not appear to be our savior, as I highlighted in a previous post Utah job growth has not held up as predicted. And, as job losses are heavily caused by the depressed real estate market and plummeting contruction, it's a double whammy. It looks like we'll take the more painful route in clearing out HISTORICALLY HIGH house inventories and getting our market healthy again with SIGNIFICANT drops in home prices valley wide. An INCREASE in foreclosures is a sad but likely necessary reality to help bloated inventories.

The following article is from September 5th, Bloomberg Online.

Sept. 5 (Bloomberg) -- Foreclosures accelerated to the fastest pace in almost three decades during the second quarter as interest rates increased and home values fell, prompting more Americans to walk away from homes they couldn't refinance or sell.

New foreclosures increased to 1.19 percent, rising above 1 percent for the first time in the survey's 29 years, the Mortgage Bankers Association said in a report today. The total inventory of homes in foreclosure reached 2.75 percent, almost tripling since the five-year housing boom ended in 2005. The share of loans with one or more payments overdue rose to a seasonally adjusted 6.41 percent of all mortgages, an all-time high, from 6.35 percent in the first quarter.

Tumbling home prices are making it difficult for even the most creditworthy owners with adjustable-rate mortgages to sell or get a new loan as their financing costs rise, said Jay Brinkmann, MBA's chief economist. Prime ARMs accounted for 23 percent of new foreclosures and subprime ARMs were 36 percent, he said.

``People chose the lowest payment option to get into some of the very expensive housing markets and now that prices are coming way down, they can't sell and they can't afford the higher payments,'' Brinkmann said in an interview.

The three-year-old housing slump has slowed growth of the world's largest economy, caused more than half a trillion dollars of losses at banks such as Citigroup Inc. and UBS AG, and crimped earnings for companies such as Home Depot Inc. and Lowe's Cos. that rely on home purchases to fuel demand.

Economic Growth

The drop in home sales and values, along with tighter credit conditions and higher energy costs, probably will ``weigh on economic growth over the next few quarters,'' Federal Reserve policy makers said Aug. 5 when they decided to hold their benchmark rate at 2 percent. The central bankers cut the rate seven times in the last year in an attempt to avert a U.S. recession.

The Fed probably will keep the rate level for the next few months, according to the price of Fed funds futures. There's an 81 percent chance of no change at the Sept. 16 meeting and a 75 percent chance of no action at the Oct. 29 meeting, they indicate.

Foreclosures started on prime mortgages rose to 0.67 percent from 0.54 percent and the foreclosure inventory increased to 1.42 percent from 1.22 percent, the report said. The share of seriously delinquent prime mortgages was 2.35 percent, up from 1.99 percent.

Prime Mortgages

The share of new foreclosures on prime ARMs was 1.82 percent, triple the 0.58 percent in the year-earlier quarter, and the total foreclosure inventory was 4.33 percent, up from 1.29 percent, the report said. The share of seriously delinquent prime ARMs was 6.78 percent, rising from 2.02 percent a year ago.

New foreclosures on subprime loans rose to 4.7 percent from 4.06 percent in the first quarter, according to the report. The total foreclosure inventory increased to 11.81 percent from 10.74 percent and the so-called seriously delinquent share of loans that are 90 days or more overdue rose to 17.85 from 16.42 percent.

Existing home sales fell to a 10-year low in the second quarter and the median price for a single-family house dropped 7.6 percent, according to the National Association of Realtors in Chicago.

About 75 percent of U.S. banks surveyed indicated they tightened standards on prime mortgages, up from 60 percent in the previous survey, the Federal Reserve said on Aug. 11.

The Mortgage Bankers report is based on a survey of 45.4 million loans by mortgage companies, commercial banks, thrifts, credit unions and other financial institutions.

Utah #10 Nationally In Foreclosures

A recent Salt Lake Tribune article subtitled, "Welcome to Utah, one of the new foreclosure capitals of the United States" gives a depressing impression about our real estate market. While I don't dispute the statistic, there is a false implication in the story about the overall health, or lack thereof, of our real estate market.

Utah is always at the top of the list in mortgage fraud and I believe the foreclosure statistic is in this same vein. Indeed, in a culture where people are encouraged to settle down and raise families early, its not suprising to see a higher relative percentage of people biting off more debt than they can chew. The reason I don't see these kinds of problems as an overall indicator of our real estate market, is that our job growth and rental vacancy numbers, to name just a few, are still quite strong.

Here's the the article from the Tribune.


After years of economic prosperity, Utah now has the country's 10th highest home foreclosure rate. One in 600 households in the state is in some stage of losing a home because the homeowner is behind on loan payments, according to RealtyTrac, a service that tracks foreclosure filings nationally.

In June alone, 1,501 households received some type of foreclosure-related filing, up 141 percent from the same month last year, RealtyTrac said. National foreclosure filings were up just 53 percent.

Utah's foreclosure rate still remains below the national rate - one for every 501 households. But it is now higher than all but nine states.

With the state enjoying one of the country's strongest economies in recent years, the rate of Utahns losing homes has been low. But over the past year, employment growth has slowed significantly and the once booming real estate market lost much of its steam.

Home sales in most areas are down significantly from a year ago, and Utah now faces the specter of falling home prices, a problem that has plagued much of the country for more than two years.
''The [national] foreclosure problem is getting worse and will stay with us well into the next decade,'' said Mark Zandi, chief economist for economic forecasting service Moody's Economy.com. ''The job market is eroding and homeÂowners have less equity. Lenders are much less willing to work with you if you've got negative equity, and you're more likely to give up your house if you're deeply underwater."

Among 230 metro areas, Provo-Orem was 37th nationally in foreclosures, while the Salt Lake City area was No. 89. Ogden-Clearfield was 115th.

People are losing homes for various reasons. A less favorable job market may make it difficult for someone who loses a job to find another quickly enough to stay current on a loan.

Years of home-price run-ups have left houses unaffordable to many buyers. And tighter lending standards enacted because of the subprime lending debacle make it difficult for many to qualify for a home loan. With fewer buyers, inventories of homes for sale are piling up, making it more difficult to sell a home quickly enough - and at a high enough price - for families falling behind on their mortgages to avoid foreclosure.

Housing advocate Kim Datwyler, executive director of Neighborhood Nonprofit Housing Corp. in Logan, said a number of borrowers facing foreclosure have adjustable-rate mortgages that are now resetting at higher rates, pushing monthly payments higher. Due to tighter lending criteria, many cannot qualify for fixed-rate loans with lower monthly payments.

Datwyler and other housing advocates are urging those in trouble to contact the Housing Education Coalition, a network of public and nonprofit agencies that counsel people in danger of foreclosure.

Many families facing foreclosure were current on loans until encountering an unexpected medical problem, loss of a job or another hardship.

Kim and Howard Nivison of Richmond trace their troubles to the day he was hit by a car while crossing a road near his family farm on an ATV. A traumatic brain injury and other physical ailments preclude him from managing the farm or working an outside job.

Kim Nivison felt helpless as she and her husband used up their savings to stay afloat. Then she heard about Neighborhood Nonprofit and called for help. The agency helped her secure a new loan with a lower monthly payment.
"I would tell anyone having problems to call right away, even before they miss that first payment," she said. "The sooner they call and get the help, the better."