Foreclosure Frenzy: Fact, Fiction, and Unexpected Victims
Foreclosure is the new “F” word. But the media’s love affair with this issue is, in some opinions, overkill. One of Redfin’s own bloggers, Brenda Keener, puts forth the idea that the media coverage of the market’s downturn in general is more responsible than any other factor for the continued slide. Not everyone agrees (just look at the comments on her blog!). But certainly, whatever your stance on media attention to real estate’s meltdown, you have to admit there’s room to interpret data differently: either you spin it postively, or you spin it negatively. This is true of foreclosure stats as well.
Witness CNN’s article announcing “Foreclosure up 75% in 2007.” Among fear inducing stats here:
1. More than 1 percent of all U.S. households were in some stage of foreclosure during 2007, up from 0.58 percent the year before.
2. In California alone, nearly 66,000 people lost their homes last year.
3. California had a total of 250,000 foreclosure filings, the highest number of of any state.
And now for the postive spin. San Francisco Schtuff points out
1. Foreclosures were lower prior to last year, which causes the numbers to appear to be soaring when looked at purely in terms of percentage gains.
2. RealtyTrac reports defaults on loans, not on properties, so one household that defaults on a primary loan and an equity line will be counted as two defaults, even though both loans were for the same house. This could artificially inflate foreclosure statistics.
3. A foreclosure filing includes default notices, auction sale notices and bank repossessions. One home may fall into each of these categories as it moves through the long foreclosure process. RealtyTrac counts each step along the way separately. This also skews foreclosure statistics.
4. The overwhelming majority of homes are not in danger of foreclosure. If slightly more than 1 percent of U.S. homes were in some stage of foreclosure last year, then 99 percent of homes were not. Although some of the hardest hit communities with high concentrations of defaults are suffering, those communities do not reflect California overall.
One sad side story of foreclosures, impossible to spin positively, highlights some unexpected victims in the process: renters. Along with the frightening increase in Bay Area (specifically SF) rents, renters also face increased evictions when the homes they rent go into foreclosure. SF Gate reported that
As the mortgage crisis claims more homes – more than 11,000 Bay Area residences were repossessed by lenders last year – an increasing number of tenants are facing rapid evictions by banks eager to partially recoup their losses by selling the properties. In November, a Chronicle analysis of Bay Area foreclosures showed that about one-fifth had nonresident owners. Renters have minimal rights in such situations:
Tenants’ rights in such situations are minimal. Some cities with rent control include eviction regulations; other cities do not have rent control for single-family residence, so renters here are subject to state law, which generally requires 30 days notice. Worse, a foreclosure usually invalidates an existing lease. Paul Leonard, director of the California office in Oakland for the Center for Responsible Lending said:
”In an already flagging market, the idea that foreclosures displace renters without adequate notice creates a level of upheaval and distress that could be mitigated with more reasonable notice provisions.”
Ouch. So, yes, the media seems to like foreclosure stories as much as celebrity babies or weight gain stories. But are these stories made out to worse than they are? Do they actually make things worse than they are? Could things get any worse?
Your thoughts?
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photo credit (surprise!): abcnews.com
David said:
According to the Hayward paper, 11% of existing home sales the past month in Alameda county were of bank-owned properties, up from 1%.
That’s huge. When more and more (desperate, as there aren’t really many discretionary ones) sellers have to compete against more and more bank-owned properties, prices on “people-owned” will have to give more. Too many real people are living in 2003-2004 fantasy land (most have given up on 2005 prices at least). Prices are coming back to 2000-2001 levels, at the most.
February 11, 2008 8:51 AM
garrett said:
very interesting to see the different takes. people are nervous and they should be. all of these foreclosures will surely change the market in one way or another, it’s just important to digest news in a subjective way. evaluate where it is coming from, how valuable the source, etc. somebody is going to benefit from all these foreclosures and some will hurt from them. my fingers are crossed that it doesn’t get too bad–hopefully not too many renters and owners lose their homes or a solution can be found to minimize such an occurrence.
February 11, 2008 8:55 AM
anna said:
I was really interested in your info, Garrett. I didn’t know how Realty Trac compiled their data, and you have to be right that the numbers are skewed.
David, since regardless the numbers are still high, when do you predict we start seeing real problems in SF? Not couting District 10, things are still pretty stable here. I was wondering if that reflected the affluence of most buyers in this city, but maybe it’s more that the worst is yet to come. (?)
February 11, 2008 11:39 AM
monique torio said:
Great article. I agree that the media is really feeding huge doses of fear in people’s minds. Fear is a formidable enemy. When potential buyers are running scared, then the housing market continues to be in a standstill or worse. Thanks for the positive spin on things, I think more writers need to come up and write inspiring stories in the face of a seemingly bad economy. Always check the source of information and don’t believe everything you hear, especially from the media. Keep smiling everyone. Cheers!
February 11, 2008 12:05 PM
David said:
SF will naturally be last to the party. Some R.E. prof at UCLA had a great map of LA back during the last blow-up from 1989-1997. The map showed just like now, the boom spread from the best neighborhoods to the worst, with the worst/cheapest showing the greatest percentage increase. Then during the bust the exact opposite happened–the worst/cheapest areas dropped first, the most and the fastest, while the best areas dropped last, the least, and the slowest.
I’d guess at least a 2 year lag. And again, the best areas might not even see much of a nominal decline–just in inflation-adjusted dollars.
Prices in Oakland are already 10%+ below the peak, they’ll drop another 20-30% at least if the particular house hasn’t already, and do so in the next 2-3 years. SF will drop maybe 5-10%, and only begin in the next year or two.
But if I could predict the future perfectly, I’d be retired to my private island by now.
February 11, 2008 12:10 PM
david said:
PS. One thing I do know–in a declining market, you want to “move up” to as nice of a neighborhood as you can afford, in order to both shield yourself from price declines and also because that nice ‘hood is probably more affordable. In an appreciating market, you want to buy or invest in marginal/border ‘hoods to take advantage of maximum percentage returns.
February 11, 2008 12:24 PM
TC said:
The media has little to do with the initial slump- for that we can thank interest only loans and a poorly planned US economy. I believe we will see the worst in SF later ratrher than now as many of the ARM loans have not readjusted yet; homes bought in the 2003 and later with a 5 yr arm have yet to face the music of the regular rate….
February 11, 2008 12:33 PM
Will said:
What does the media have to do with foreclosure? I’m sorry but I just don’t see how people connect the two with a straight face.
February 11, 2008 4:27 PM
Bad Advice said:
I think the September article about rising rental prices isn’t expressly the current market trend in the Peninsula area.
I’ve been watching decent townhomes in Sunnyvale drop their prices from $2200/month to $1900/month. With google slowing its hiring, Apple, VMware, AMD stock getting hammered and the uncertainty at yahoo, I don’t see the uptick (at least in SV and MV).
In fact my rent has dropped $250. I’m renting a 2/2.5 with garage for $2100. The same unit in the complex is trying to sell for $650,000. I think the math is fairly obvious about whether rents are trailing or leading.
February 11, 2008 4:38 PM
anna said:
Hi Bad Advice,
You are most fortunate. I can also see how the hirings in your area, or lack of hirings, would drive rents down. Unfortunately in San Fran, where I live and write from, rents are at all an time high, 12% higher or more than they were last year in February. I’m not sure why; seems like if people are renting because they can’t afford a mortgage, they won’t be able to afford rent that is as high as a mortgage…
February 11, 2008 6:31 PM
Melanie said:
Surely fear drives the market down- isn’t that mainly what controls the stock market? And I have to agree that the rents going up as they have in SF (horribly) is so frusterating and ironic given that people are losing their homes right and left. America is a strange country- sometimes I wonder what we really get for our tax dollars.
February 12, 2008 4:45 PM
Will said:
Whose rent goes down? That’s amazing. Myself, I moved to Oakland last month because SF rents are out of control. They are better out here, but still (I think) more than they should be for what you get. I might be better off trying to buy in oakland since unlike SF, prices for houses have gone down out here.
February 18, 2008 2:15 PM
Anna said:
Yes, you might be able to do that. I know the prices in the East Bay have taken a hit (the kind of hit buyers like to see delivered; the kind sellers hope to duck). Redfin blogger Tracy Taylor has some great stuff about Berkeley and Oakland- take a look.
February 19, 2008 4:25 PM
scott said:
Oakland is definitely as softening market. Try to buy into better hoods though, like Rockridge, so that when things trun around, you’re poised to appreciate more for what you buy.
February 24, 2008 4:46 PM
Will said:
I never knew that stuff about Realtytrac’s data. Wouldn’t it make more sense to maybe collect that way, but to filter the excess out before releasing figures to the public to panic over?
February 27, 2008 2:48 PM