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Bottom Lines: Unemployment driving up foreclosures
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Foreclosure filings are a strong indicator of economic distress.
Those who own their homes on average get about 60 percent of their wealth from their home's equity. Losing a home to foreclosure by a lender means a family's financial situation is dire and about to get more difficult.
As the housing bubble collapsed and the economy went into deep recession, foreclosures started rising sharply and haven't stopped yet. In the third quarter this year, U.S. foreclosures are up 5 percent from the prior quarter and 22 percent from a year ago, according to RealtyTrac, a Calif.-based foreclosure information firm.
Foreclosures in southern New Jersey showed what seemed to be improvement earlier this year but are now rising again.
Atlantic County foreclosures are
33 percent higher that the second quarter but up just 9 percent from the third quarter a year ago.
Comparable figures for Cape May County are up 30 percent for the quarter and unchanged for the year, and for Cumberland County up 35 percent for the quarter and down 6 percent for the year.
These figures suggest a rapid worsening of homeowner distress in the region as foreclosures return to highs they saw a year ago, which would be very bad indeed.
Early in the housing crisis, foreclosures were driven by defaults on questionable mortgages and falling home prices. But as the recession continues and unemployment stays high, a new suspect is possible: unemployment.
Howard DeRias, who specializes in short sales for Sellstate Innovative Realty in Northfield, said this week his field work is turning up more cases of job losses figuring in housing distress.
"The economy is continuing to lag, there's no job creation and a lot of people are having to work part time instead of full time," DeRias said. "I'm hearing from people, 'I lost my job' or 'I lost my hours, and now I can't keep up with the payments.' Or maybe the spouse lost a job. It's heart-rending, heartbreaking."
Unemployment is pushing even those who have prime mortgages - those based on their good financial condition and ability to repay - into foreclosure, he said.
He said near-prime mortgages and adjustable mortgages are still a big factor in foreclosures. As the interest rates on adjustables reset, often to much higher levels, the higher payments that result can push homeowners over the edge - especially when their loans are for more than the house is now worth.
Daren Blomquist, spokesman for RealtyTrac, said the company is seeing the same pattern nationwide, with foreclosures rising rapidly in places such as Chicago, Boise, Idaho, and Detroit that weren't part of the housing bubble and bust.
"Our interpretation of the data is that the foreclosure problem is rippling out and becoming more widespread because of wider causes, primarily unemployment," Blomquist said. "The new areas where foreclosures are popping up and gaining ground indicates that's the case, that it's not just about the bubble popping anymore."
Foreclosures are still highest in states where housing prices and construction inflated the most, including California, Nevada, Florida and Arizona, he said. Now the problems in those states are being compounded by unemployment-driven home losses.
Is that what is happening in southern New Jersey?
The unemployment rates locally suggest it might be so.
In September, the jobless rate in Atlantic County was 12.2 percent, in Cape May County 8.5 percent, and in Cumberland County 12.6 percent, according to state figures. The state and national rates were 9.8 percent.
But there is another possible factor for the surge in foreclosures.
In the beginning of this year, the state courts that handle foreclosure filings were overwhelmed and let the paperwork build up. Many foreclosures weren't counted when filed.
For the first half of the year the state reported foreclosures falling, but later when it caught up on the paperwork it said they had actually risen 30 percent.
Some of the current increase could simply be that backlog of paperwork moving through the New Jersey court bureaucracy.
At least, that's what we can hope. In severe recessions, sometimes all that's left is hope.
But it seems likely that job distress is spilling into housing distress locally, too. Numbers for the next two quarters should tell us.
Contact Kevin Post:
609-272-7250
Posted in Business on Sunday, November 1, 2009 2:10 am
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