Economist's Commentary: Foreclosures Continue to Challenge Housing Recovery
October 19, 2009
By George Ratiu, Research Economist
With signs of an economic recovery continuing to crop-up, residential housing is also looking for a rebound. A stable and even moderately growing housing sector would provide the foundation for economic growth. However, in spite of historically low interest rates and lower prices, housing is facing challenges on its road to recovery.
The 9.8 percent unemployment rate is one of those challenges. The other is presented by the continuing troubles in the mortgage market. Looking at the mortgage conditions through the lens of the Mortgage Bankers Association second quarter 2009 delinquency data reveals several areas of concern.
Compared with 2008, the number of loans serviced declined by two percent. The general decline is consistent with the lower level of transactions. However, the data reveals that while the number of prime loans decreased three percent and subprime loans serviced dropped 11 percent, the number of FHA loans jumped 30 percent, nationally. In California, the number of FHA loans serviced was up 121 percent year-over-year.
Furthermore, coupled with the shift in loans from subprime to FHA, the number of loans in foreclosure has been rising. Nationally, loans in foreclosure increased 54 percent in the second quarter of the year from the same period in 2008. Seven states recorded changes of over 100 percent in foreclosures during this time. The shift in loan performance is also evident in the foreclosure records. While subprime loan foreclosures rose 46 percent nationally, prime loan foreclosures jumped 197 percent year-over-year. Over the same period, FHA and VA loan foreclosures increased 82 percent and 95 percent, respectively.
Looking at California, the highest jump in foreclosures on a yearly basis was recorded by FHA loans, which were up 342 percent. Meanwhile, foreclosures for prime loans rose 313 percent and for VA loans they moved up 309 percent. In comparison, the number of subprime mortgages in foreclosure increased 51 percent.
With the unemployment rate expected to surpass 10 percent by year's end and a housing market entering the traditionally slower winter season, the number of mortgages entering foreclosure is likely to continue rising.
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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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