Foreclosures Concentrated in Four States
I have posted many times (here, here, here and here) about how foreclosures are mostly concentrated in only four states: AZ, CA, FL and NV (see map above), despite the media coverage that would suggest it's a much more widespread phenomenon.Now comes confirmation of those observations of highly concentrated foreclosures from a new study recently released by the University of Virginia (press release and full study here):
National housing price declines and foreclosures have not been as severe as some analyses have indicated, and they are not as important as financial manipulations in bringing on the global recession, according to a new analysis of foreclosures in 50 states, 35 metropolitan areas and 236 counties by University of Virginia professor William Lucy and graduate student Jeff Herlitz.
Their analysis shows that most foreclosures have been concentrated in California, Florida, Nevada, Arizona and a modest number of metropolitan counties in other states. In fact, they claim that "66% of potential housing value losses in 2008 and subsequent years may be in California, with another 21% in Florida, Nevada and Arizona, for a total of 87% of national declines."
"California had only 10% of the nation's housing units, but it had 34% of foreclosures in 2008," Lucy and Herlitz reported.
California was vulnerable to foreclosures because the median value of owner-occupied housing in 2007 was 8.3 times the median family income, while the 2007 national average was only 3.2 times higher than median family income (and in 2000, it was lower still at 2.4).
HT: NY Times columnist Catherine Rampell's article "Foreclosure Rates Aren’t Really That High … Unless You live in Arizona, California, Florida or Nevada."
8 Comments:
Those states also have the higher run up in prices which creates a greater incentive for the homeowner to walk away or be so upside down that mortgage MOD does not apply. Fly over states have lots of mortgage credit issues but generally mortgage MOD current practices can be more helpful then in a state such as Calif. If you had principal write downs say at least 50% then mortgage MOD would have more impact in Calif and significantly reduce foreclosures
"foreclosures are mostly concentrated in only four states: AZ, CA, FL and NV"...
Hmmm, what do these four states have in common?
Illegal aliens in sizable numbers...
Three of the four states listed are heavy with illegal immigrants...
From Diggers Realm: Wells Fargo Begins Openly Giving Illegal Aliens Home Loans In California
From San Diego Union Tribune: Undocumented residents being recruited for loans
From Michelle Malkin in 2003: Last week, The Washington Post published a rosy front-page tale headlined, "Illegal Immigrants Buy Into Homeowning Dream." The article detailed how illegal aliens in the Washington, D.C., area are successfully hooking up with cunning mortgage brokers and complicit lenders to secure home loans. Despite federal laws making it illegal to violate the borders, overstay visas, and recruit, harbor and encourage illegal aliens, the Post notes that the illegal alien home loan schemes are "legal."
From the LA Times: Despite Illegal Status, Buyers Get Home Loans
So now we have: Bailout Bills, Illegal Aliens, and Weird Lending Practices
The housing data show the U.S. is a most diverse and fragmented society (I suspect, many delinquent homeowners have been living in their homes almost for free, for a year or more, increasing their saving). The U.S. auto industry is also a significant component of the U.S. economy:
GM's U.S. sales totaled 127,296 vehicles in February, down 52.9 percent from 270,423 units a year earlier. U.S. auto sales fell 18 percent in 2008 to 13.2 million units. Analysts forecast a further decline in sales to as low as 10 million units in 2009. A record 881 U.S. auto dealerships closed in 2008, with Detroit's three struggling automakers representing 80 percent of the decline. (Partly from article: "Record 881 U.S. auto dealerships closed in 2008: data.").
I suspect, a large proportion of the 6.2% decline in real GDP last quarter was auto related (Japan's real GDP fell over 12% last quarter). It may have been much cheaper for the government to buy autos and give them away to stimulate the economy (three million autos at $20,000 each is $60 billion).
Unfortunately, we didn't get a timely stimulus for $787 billion. Instead, we're getting a future welfare state that will make Europe look stingy. I stated a month ago:
How to prevent an economic contraction in 2009 (currently, roughly a 2% contraction is projected in 2009):
1. Obama should change his stimulus plan to a $2,000 tax cut per worker (in the form of a tax holiday), along with increasing unemployment benefits by a similar amount. This will help households strengthen their balance sheets, i.e. catch-up on bills, pay-down debt, increase saving, spur consumption of assets and goods, etc. This plan will have an immediate and powerful effect to stimulate the economy. When excess assets and goods clear the market, production will increase.
2. Shift "toxic" assets into a "bad bank." The government should pay premiums for toxic assets to recapitalize the banking industry and eliminate the systemic problem caused by global imbalances. The Fed has the power to create money out of thin air, to generate nominal growth, boost "animal spirits," and inflate toxic assets.
3. Government expenditures should play a small role in the economic recovery. For example, instead of loans for the auto industry, the government should buy autos and give them away to government employees (e.g. a fringe benefit). So, automakers can continue to produce, instead of shutting down their plants for a month. Auto producers should take advantage of lower costs for raw materials and energy, and generate a multiplier effect in related industries.
FINANCIAL MANIPULATIONS
AIG
somebody made a lot of money
who was it?
It seems, the U.S. will soon enter a period of higher taxes, accelerating inflation, and higher interest rates, or a long-term L-shape recovery, which will lower living standards for rich and poor.
Bix, the U.S. masses made a lot of money, i.e. anyone who borrowed "excess" capital (from strong U.S. corporate profit growth and massive foreign capital inflows). There was a tremendous shift of real wealth from savers, including foreigners, to borrowers, including lower income Americans.
For example, many bought houses they couldn't afford or qualify for and when they doubled in value, they extracted the equity, and spent it (e.g. on housing related goods, home improvements, and other goods), which lifted U.S. actual output towards potential output. U.S. financial institutions distributed the excess capital to the masses (for fees).
AIG insured the capital that was used by financial institutions (credit default swaps). However, the systemic crisis overwhelmed AIG. So, the government had to bail it out.
What is interesting in Florida is that many of these foreclosed homes were offered as a "short sale" which usually obtained at least one potential buyer's offer before going into foreclosure. The banks routinely turned down reasonable offers with the misguided idea the home was worth more than the market actually valued it. Until recently, the banks were not willing to adjust their market values on homes that were receiving offers. Consequently, the bank turned down the "short sale" offer and the home went into foreclosure. These bank-owned homes are now being picked up for a fraction of their value. The point being, that Florida homes are starting to move again as inventories are declining (a good thing for home prices.) The market in Florida probably bottomed early last year.
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