Tuesday, July 31, 2007

Foreclosures soar in Arizona: Financing deals now haunt borrowers, but 'correction' no surprise to experts

Andrew Johnson from The Arizona Republic

The fallout from the country's real-estate slump continues to reverberate in Arizona and across the nation as more homeowners and lenders turn to foreclosure to solve their financial woes.

New data released Monday show that foreclosure-related filings in Arizona jumped during the first half of 2007, compared with the same period a year ago, meaning that an increasing number of residents have been unable to keep up with mortgage payments.

The news, while not unexpected, is the latest indication that the housing market has not yet stabilized.

Last week, Wall Street had its worst week in five years, in part because investors feared that mortgages awarded to borrowers with poor credit would lead to a widespread economic slowdown. The Dow dropped more than 580 points over the course of just a few days.

Experts say it will likely take time before things get better.

"By any calculation, things are going to look bad compared to 2004 and 2005," local economist Elliott Pollack said. "There will be a transition period over the next couple of years as those people who took loans that maybe they shouldn't have taken have to deal with the issue."

Numbers released Monday by Irvine, Calif.-based RealtyTrac show that foreclosure-related filings in Arizona increased by 128 percent in the first half of 2007, over the same period a year ago.

In Maricopa County, for example, there were 19,394 properties in some stage of foreclosure in the first half of the year, up from 7,671 during the year-ago period, the company said.

Nationally, the increase in filings was 55 percent, with other Sun Belt states like California and Florida seeing the biggest jumps.

1 of every 92 households

In total, RealtyTrac has estimated that one of every 92 households in Arizona is in some stage of foreclosure, meaning the situation is likely affecting both speculators and average homeowners.

Data from Glendale-based Information Market are different but reflect the same upward trend.

That firm shows that 2,952 homes were foreclosed on in Maricopa County from January through June, up from 208 during the first half of 2006.

The two firms' numbers are different because RealtyTrac's calculation includes properties in various stages of foreclosures, including those in which the borrower has defaulted but is working to get the loan out of delinquency and those in which the property has been repossessed.

In some instances, that means the same property is counted twice.

By comparison, the data from Information Market reflect only those properties that were actually foreclosed upon.

Regardless of which figure are used, industry analysts say the calculations signal the same growing problem: Foreclosures are on the rise.

"They are at an all-time high, but it's also following a period of very high sales back in 2005," said Tom Ruff, a principal with Information Market. "I just look at it as a market correction, myself."

What it means

Many experts say the increase in foreclosures was not unexpected. During the heyday of the 2004 and 2005 housing boom, people who normally wouldn't have purchased a home were able to do so, thanks to extraordinarily low interest rates and specialty financing deals like adjustable rate and subprime mortgages.

Now, those factors have come back to haunt borrowers. Many are facing higher payments or balloon payments as part of their financing terms, and have been unable to refinance or sell because of the slumping market. The result? Poor credit scores for overextended homeowners and depressed property values in neighborhoods with large pockets of foreclosed homes.

While most experts agree the rising number of foreclosures signals a return to normalcy both locally and nationally, it still can have a very negative impact on neighborhoods.

"If you go into a neighborhood and there's a lot of foreclosed properties, they're empty, you don't know who's going to buy them, they're probably not being maintained at the moment," said Jay Butler, director of realty studies at Arizona State University's Morrison School of Management and Agribusiness.

1 comment:

Anonymous said...

I work for CurrentForeclosures.com, a foreclosures site and have seen a huge increase in the number of foreclosures in the past 7 months. I believe it is a combination of not only sub-prime and ARM mortgages, but also the high number of people who have gotten loans with interest rates at an all time low... in addition to the rapid depreciation in some areas and the difficulty some are experiencing in selling their homes.