Economist's Commentary: March 10, 2008
National Foreclosures Climb, But Some States Show Signs of Improvement
By George Ratiu, Research Economist
The fourth quarter data from the National Delinquency Survey released last week by the Mortgage Bankers Association shows, in general, deteriorating delinquency rates and an increase in foreclosures driven heavily by souring subprime loan performance. On the other hand, fewer people are exposed to subprime products as some have switched out of these risky loans and banks have placed a virtual halt in new subprime mortgages origination. The total subprime loans serviced declined 2.4 percent from the third quarter and 2.0 percent from the same period in 2006.
Delinquencies: Both prime and subprime loans posted quarterly increases in delinquency rates. Delinquency rates (seasonally adjusted) for prime loans increased from 3.12 percent in the third quarter to 3.24 percent in the fourth quarter, while rates for subprime loans went up 100 basis points (from 16.31 percent to 17.31 percent). Delinquency rates were also up 13 basis points for FHA loans (from 12.92 percent to 13.05 percent), but decreased nine basis points for VA mortgages from 6.58 percent to 6.49 percent.
On a year-over-year basis, delinquency rates were split. The rates (non-seasonally adjusted) moved up from 2.79 percent to 3.55 percent for prime loans and from 14.27 percent to 18.82 percent for subprime loans. However, the rates dropped for FHA loans from 14.43 percent to 14.11. They also decreased from 7.43 percent to 7.14 percent for VA loans.
Foreclosures: Nationally, the number of foreclosure starts was up 14.2 percent compared with the third quarter while the number of foreclosure inventories increased by 22.0 percent in the fourth quarter. On a year-over-year basis, the rate of foreclosure starts moved from 0.57 percent to 0.88 percent, while the foreclosure inventory rate increased from 1.19 percent to 2.04 percent.
Following the media coverage we know that the loan performance situation is deteriorating. Yet, there continue to be large local market variations. Ten states recorded decreases in the number of foreclosure starts in the fourth quarter compared to the third quarter. The drops in foreclosure starts ranged from 0.1 percent in Kentucky to 18.4 percent in Delaware and 21.5 percent in Alaska. Compared to the same quarter last year, foreclosure starts were also down 3.4 percent in North Dakota.
The data also point to positive signs in the subprime market. Eight states recorded declines in the number of foreclosure starts in the fourth quarter from the previous one: North Dakota (down 28.3%), Alaska (down 26.2%), Vermont (down 8.3%), Kentucky (down 4.0%), District of Columbia (down 3.1%), Wyoming (down 1.9%), South Dakota (down 1.7%) and Michigan (down 0.2%). Michigan recorded a decline (or at least temporarily stopped rising) despite the painful job market situation in the state.
Year-over-year, the number of foreclosure starts for subprime mortgages were up in all states, except for North Dakota, where there was a 14.7 percent decline. Compared to the same quarter last year, the number of foreclosure inventories also increased. Mississippi was the only state to post a 5.8 percent decline in the number of foreclosure inventories.
While the rates of delinquency and foreclosure were higher at the national level, they clearly vary by state. Moreover, based on percent change from one quarter to the next, the fourth quarter movements were smaller across all states, indicating a possible slowdown in foreclosure activity. Based upon weakening price trends in many parts of the country and the projected number of resetting loans coming up in the first half of 2008, expect continuing increase in delinquencies and foreclosures. However, for consumers, keep an eye on your local market as local conditions may indeed be far different from what you read and hear in the national headlines.
This is one in a series of commentaries by the Research staff of the National Association of REALTORS®. Read more commentaries >
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