As we predicted in a recent column foreclosure activity is on the increase for the third consecutive month across the country. Housing markets have cycled over the top and price corrections have begun in the most overheated regions.
Overall 117,259 properties in the U.S. went into the foreclosure process in February (a 68% year over year increase and a 13% increase over the previous month) and January posted a 27% increase over December 2005.
States heavily dependent on the manufacturing sector of the economy such as Michigan, Ohio and Indiana reported strong month to month foreclosure activity increases. In Michigan 10,343 properties went into foreclosure (more than double the number for the previous month), reflecting the woes of major automakers, Indiana posted a 34% month over month jump in new foreclosures. In Ohio, the month over month increase was 19%.
The highly publicized massive layoffs and early retirement buyouts at GM and Ford will have a ripple effect throughout the manufacturing sector and lead to further job losses in those states. We can expect mortgage defaults to continue to accelerate in the foreseeable future.
Texas had the highest number of new foreclosures in the country with 13,616 even though new filings dropped 7% in February. Chicago reported a 5% month over month increase but a 77% increase year over year. The Windy City had experienced a near epidemic of foreclosures in recent years due to extensive predatory lending especially in Cook County. State legislation aimed at curbing abusive lending practices did bring the level of foreclosure activity down. (Read more about this HERE.)
Mortgage fraud continues to be a serious problem in Chicago. However, now a new Mortgage Rescue Fraud Act, intended to stop fraudulent and often illegal schemes that fleece troubled homeowners out of both money and property, threatens to abrogate homeowners’ property rights and prevent us as honest investors from helping people in financial distress. (Read more about this in this month’s Legal corner).
Readers that live in states effected by this Act should contact their state representatives immediately and urge them to reject this new legislation. It does more harm than good.
In the Los Angeles metro area we saw a slight drop in February foreclosure activity. But the level of new foreclosures has increased more than 100% from October 2005, and it has been rising for three straight months. Statewide foreclosures decreased about 3% month over month — but we see this as the calm before the storm.
The reason as we’ve said is the widespread use of very dangerous mortgage products as homebuyers sought to qualify for ever more expensive homes. These include adjustable interest only loans and so-called option ARMs with start rates as low as 1% and very high negative amortization. These financial time bombs will start going off later this year and keep going off into the intermediate future.
Price appreciation has gone essentially flat in all major California metro areas, and slight declines are likely in the near future. According to CNN Money eight of the ten most overvalued U.S. housing markets are in California.
The same is true of Phoenix AZ where we’ve seen a 6.7% decline in median prices from six months ago. Prices have now leveled off, and as of March 21, 2006 have been flat for the last 60 days.
As markets change across the country, our investment opportunities will change with them. Stay tuned for updates as we move into the spring and summer seasons.
