There’s no humor in this top 10 list: The states hardest hit by foreclosure.
Bankrate.com reports that it’s especially unfunny for homeowners and agents in Nevada, Florida, California and Arizona, who’ve languished in the top four for most of the real estate recession.
“Those states had similar scenarios,” says Rick Sharga, senior vice president of RealtyTrac, a California-based firm that tracks U.S. foreclosures. “They all had unsustainably high home prices and had many buyers who really couldn’t afford them — most with toxic mortgages — followed by (downturn-related) unemployment.”
Some of the country’s foreclosure problems revolved around a pervasive American mindset of “object identity,” says Barbara Fitch of Pacific Star Real Estate in Corona, Calif. “The house is who they are and that is why (so many) are in this jam.”
Unfortunately, the foreclosure beat goes on. RealtyTrac reports more than 300,000 U.S. properties received a foreclosure filing in November 2009 for the ninth straight month.
Here’s a look at the top 10 states for foreclosure and how they got there:
No. 1: Nevada — In third-quarter 2009, Las Vegas suffered the nation’s highest foreclosure rate at 5.13 percent, or more than one foreclosure for every 20 households — almost seven times the national average. Investors, who snapped up one of every three homes sold at the boom’s height, were gambling on future gains after watching Vegas-area median home prices jump 122 percent from 2000 and 2006 — twice the U.S. rise of 49 percent in that span. The crash arrived, and real estate and construction jobs fell away — followed by many casino jobs. While foreclosure numbers were improving near year-end 2009, a 13 percent Las Vegas unemployment rate and 12.2 percent rate in Reno/Sparks helped keep Nevada in the top spot.
No. 2: Florida — In Miami-Fort Lauderdale-Pompano Beach, unemployment soared from just over 3 percent in early 2006 to 11 percent in fourth-quarter 2009, according to the U.S. Bureau of Labor Statistics, or USBLS. Orlando and Daytona Beach posted slightly higher unemployment, while Cape Coral-Fort Myers posted a 13.7 percent rate, helping place it at No. 4 on RealtyTrac’s top 10 foreclosure cities. “It’s likely that California will recover before Florida does, partly because of its net growth in population and partly because Florida is lousy with condos, which are typically the last to come back,” Sharga says. From 2003 to 2007 Florida prices doubled and tripled based largely on speculation, says Bernard Haddigan, managing director of Marcus & Millichap, a national commercial real estate brokerage specializing in real estate investment services. Homeowners were aggressively borrowing on future values and lenders were happy to cooperate, he says.
No. 3: California — At year-end 2009, the Golden State had 18 statistical metro areas where unemployment exceeded 10 percent — with nine of its cities in the bottom 14 in employment, according to the USBLS. In the hard-hit region surrounding Ontario, San Bernardino and Riverside, home values spiked from around $300,000 pre-boom to $800,000-plus at the market’s zenith. When the bust hit, jobs were whacked quickly along with home values. “We learned to borrow against everything,” says Fitch. “Buyers should buy houses for less than what they qualify for — not because it’s the largest or because it’s a bargain.” Pamela Haile, a Realtor with Coldwell Banker Gonella Realty in hard-hit Merced, Calif. — the top foreclosure city in the country — says, “We had a lot of lender fraud going on with non-English speaking residents. They were rushed through with lenders who added income to their applications and lied to buyers that it was legal.” In Merced, one in every 83 homes received a foreclosure filing in November. “Builders were manufacturing homes using an assembly line (in the area),” explains Julie Jalone of Roseville, Calif.-based MagnumOne Realty. “These homes were sold, sometimes in lottery style, before they were even built.” Consequently, she says, owners with mortgages higher than the purchase price came to represent a large portion of the market.
No. 4: Arizona — The 8.7 percent jobless rate in Phoenix-Mesa-Scottsdale is the lowest of the top five foreclosure states. However, Arizona foreclosure activity still jumped nearly 8 percent in November with one in every 186 homes getting a notice. Despite a breakneck growth rate through the past decade, the area remains overbuilt residentially and commercially, says Kevin Schuck, senior vice president for CB Richard Ellis, a national commercial real estate firm. All the growth fueled a run-up in service-related and construction-related jobs “that gave people a false sense that it would continue forever,” he says. In Phoenix and other high-foreclosure markets, banks are holding back foreclosure inventory to keep from flooding the market, Sharga says. Nevertheless, “we don’t think the (overall U.S.) market will not feel much better until 2013,” he says.
No. 5: Idaho — The inclusion of Idaho, where one in every 259 homes received a filing in November, in the top five may surprise some — but not Dale Alverson, certified buyer-broker with Boise, Idaho-based 43 Degrees North Real Estate. “It’s not really surprising considering we had 20 percent-plus appreciation annually from 2003-2006,” he says. “What economy can sustain that?” Add in interest-only loans, “stated-income” loans and investor over- exuberance, “and you had all the ingredients for the perfect real estate tsunami.” On the upside, buying opportunities currently abound in most distressed markets. “As many savvy billionaires have stated, ‘Buy when everyone else is selling and sell when everyone else is buying,'” Alverson says.
No. 6: Michigan — The state’s automotive-related job losses have been well chronicled. Nearly 16,000 Michigan residences received foreclosure filings in November, or almost 10 percent above the state’s totals in November 2008.
No. 7: Illinois — The Land of Lincoln saw 16,422 properties owners receive foreclosure notices in November, nearly 108 percent higher than November 2008 and the third highest in volume among all states, according to RealtyTrac.
No. 8: Utah — Between Jan. 1 and Sept. 30, 2009, about 42.4 percent of all Utah subprime adjustable-rate mortgages, or ARMs, were reset, compared with 27.8 percent nationally, according to the Federal Reserve.
No. 9: Maryland — More than 30 percent of the state’s foreclosures occurred in Prince George’s County, which has just 10 percent of Maryland’s housing stock. County officials blamed the problem on exotic loans and balloon mortgages.
No. 10: New Jersey — About 3,000 New Jerseyans have received counseling through the Garden State’s “Foreclosure Mediation Program.”