Putting Metro Area Foreclosures in Perspective

by Alex Stenback on March 2, 2009

Percent of housing units under foreclosure of pre-foreclosure Minneapolis MSA

Using higher order mathematics and my degree in nothing whatsoever to do with statistics and research I have concluded that 76.4% of all news articles about real estate in the Twin Cities are about foreclosures.

Though that might not lead you to believe that 75% of everyone you know is going into foreclosure, the level of hysteria in the media over foreclosures might give one an exaggerated sense of their impact.

Which is why new University of Virginia Study is worth hoisting here  It says:

“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.”
“Although there are pockets of substantial declines, claims that overall housing values have tanked nationwide are exaggerated.”
“Most foreclosures have been concentrated in California, Florida, Nevada, and Arizona, and a modest number of metropolitan counties in other states. In fact, 66 percent of potential housing losses in 2008 and subsequent years may be in California, with another 21 percent in Florida, Nevada, and Arizona, for a total of 87 percent of national declines in these four states.”

Okay, so we can isolate California and Florida’s epic fails by pushing them into the ocean, but what of landlocked Nevada and Arizona? Making them Deserts so nobody would want to live there has obviously not worked as planned, so now what?

Also, check out the graphic  from the study at the top of the post.  Even the worst Metro county foreclosure and preforeclosure percentages do not crack 1.5% of housing stock. Granted, this is from 2007 data, but even if we double the figures across the board, it is still a relatively small slice of the whole, and that will probably surprise a few of you.

{ 1 comment… read it below or add one }

Nemoudeis March 4, 2009 at 10:02 am

Well, like The Man once said: a recession is when your neighbor loses his job; a depression is when YOU do.

I am a part of that 2007 statistic you cite – I was happily living in my modest St. Paul duplex for over ten years until a distant subsidiary of Bear Stearns took my landlord out behind the garage and retired him into a shallow grave. It’s been over a year since then, and I still can’t allow myself to be present at any social occasion where bankers, money managers, realtors, or any other financial geniuses might happen to be present – things will wind up broken, I assure you.

Well you seem to be a square fella, and I could stay civil with you. But I wouldn’t advise throwing yourself between me and any of your colleagues.

Another point: I have seen the figures for 2008, and they are indeed close to double what they were for 2007. And this is an astonishing figure by any historical standard. I also think this trend is several quarters away from reaching anything close to a mature phase, a thought which chills me greatly to contemplate. Furthermore, the multiplier effect of all those foreclosures (even at a “relatively small” 2.8-3%) WILL have a far more profound effect on the overall economic picture than the basic number would indicate. The higher the foreclosure rate, after all, the more likely it is that you will KNOW someone who has gone through it; and this will have an effect on your overall behavior as it relates to the general economy.

Think of it as the Godzilla of all Paradox of Thrift paradigms.

And another important point: it is arguable that the current foreclosure rate is being held at a much lower level than it should “normally” be under these conditions, due to that other Econ 101 concept known as the Law of Diminishing Returns. An increasing number of nontraditional limiting factors are coming into play here, regardless of whether or not people are able to actually keep up with these mortgages. Society at all levels is beginning to fight this trend tooth and nail, using social, economic, and political weaponry that would have been undreamed of even a few years ago. While it ultimately won’t do much under the current legal climate than precipitate delay, it does have the effect of pushing back the number of actual foreclosures that go into the books. Couple that with the fact that ALL the financial agencies are so swamped with bad housing loans that they simply don’t have the ABILITY to process them all, and you have a formula for preventing a substantial portion of foreclosures that would otherwise exist at any given time.

But those people still know they’re in trouble, regardless of whether or not some statistical abstract has successfully acquired data about them.

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