Mary Umberger

January 30, 2008 

Another batch of dismal housing data hit the economy Tuesday, including worsening foreclosure rates at a time when recession fears are growing.

"We’re still in the middle of all this," said Bob Walters, chief economist for Quicken Home Loans in Livonia, Mich. "I would expect the data to get worse before it gets better."

The numbers, in three reports released Tuesday, showed that:

– More than 1 percent of all U.S. households were in some stage of foreclosure last year, nearly double the 2006 figure, according to RealtyTrac, a housing data firm. Illinois ranked ninth nationally in foreclosures, up about 25 percent year over year and 94 percent since 2005.

– Home values took a major swoon, with prices in a 20-city index tracked by Standard & Poor’s declining by a record 7.7 percent in November. The study found Chicago-area prices that month were 3.9 percent lower than the year before.

– The rate of home ownership saw its biggest one-year drop on record, and the number of vacant homes climbed to 2.18 million from 2.07 million, the Census Bureau reported.

"Six months ago, people were saying we will see prices hit rock bottom, and now I don’t think we’re seeing even the most optimistic people saying that," said Geoff Smith, vice president of the Woodstock Institute in Chicago, which has studied foreclosure trends.

On top of that, many observers say any government aid, including a widely expected interest rate cut from the Federal Reserve, will be too little, too late.

According to the S&P home-price data, Chicago wasn’t sliding nearly as badly as others. Miami continued to be the weakest U.S. market, with an annual price decline of 15.1 percent.

Homes more affordable

Smith said that if there’s any room for encouragement in the dreary data, it is that the decline in property values will make homes more affordable and pull buyers back into the market.

"If you see property values coming back down to earth, that’s where you’re going to see a recovery, in affordability," he said.

Larry Shaw said he isn’t seeing renewal in his South Side neighborhood: He’s seeing "For sale" signs.

"There are a lot of people in trouble," Shaw said Tuesday. "I go down 87th Street and I see homes for sale. People are trying to sell their houses because they can’t afford it."

Shaw, a security officer since 1983, said he fell four months behind in his mortgage last year after his loan rate jumped to 12.1 percent from 7.8 percent. He thought he had taken out a fixed-rate mortgage three years earlier.

Believing he had been deceived by his lender, he worked with Action Now, a grass-roots organization that fights predatory lending, to pressure his lender to restructure the loan. Now he has a 30-year fixed-rate mortgage at 7 percent, he said.

"I think the government should step in and try to protect some of these homeowners from getting caught with predatory loans," Shaw said.

Some are pinning their hopes on congressional action and interest rate cuts by the Fed — another is widely expected Wednesday — to stimulate the economy and lift housing out of the doldrums with it.

The Fed’s cuts, however, don’t have a direct relation to mortgage-interest rates, which are determined by the bond market. But Rick Sharga, a RealtyTrac spokesman, said last week’s three-quarter-point Fed cut and any similar action this week may provide some momentum.

"[Fed rate cuts] seem to have a psychological effect" to help restore home buyer confidence, he said. "At some point, people will get off the sidelines, and that’s the real solution to the foreclosure situation."

But J. Edward Katz, a business professor at Penn State University, said he doubted that government interventions could have broad effect.

"I think we’re just going to have to let the market play out," Katz said. "The proposals may be in the right direction, in part. But they’re too little, and I think the situation has deteriorated too far."

A year of pain

Sharga said much of the pain borrowers such as Shaw are feeling from adjustable-rate loans may be about to crest.

"I expect 2008 will be the final year of the big resets for the most vexing of these loans, the subprime adjustable-rate loans," he said. "We’re going to see a huge wave of those resetting in late May and June.

"Once those have reset, we will have virtually all of those loans out of the system, and that, theoretically, should take some of the pressure off. There will be still other loans adjusting out there, but of a more traditional variety, none that have a history of defaulting.

"If nothing else bad happens economically, we could start seeing things coming back by 2009," he said.

But that leaves 2008, he said.

"Short term, we’re going to see half-a-million to three-quarters-of-a-million bank-held properties put on the market this year, and that will do nothing to help with the inventory [of homes for sale] imbalance we have," Sharga said.

These clippings are provided for "fair use" not-for-profit,
educational purposes (and other related purposes). If you wish to use
this copyrighted material for purposes of your own that go beyond "fair
use," you must obtain permission from the copyright owner. Please
contact Woodstock Institute for more information.