Though Fed Chair Ben Bernanke says the economy is growing again, the housing sector tells a different story. Housing sales are slumping across the nation and Minnesota foreclosures are rising.
A June 23 Commerce Department report showed new single-family housing sales falling by a surprising 32.7 percent from April to May 2010. The seasonally adjusted numbers show May 2010 sales of 300,000 new homes down about 18 percent from the May 2009 estimate of 367,000. That’s a bigger drop than analysts predicted, and reflects the end of the federal home buyers’ credit on April 30. Sales of existing homes also fell in May, by 2.2 percent.
Minnesota foreclosure rates in the first quarter of 2010 were the highest in six quarters, according to the Minnesota Housing Partnership — more than 6,700 foreclosures statewide, with more than two-thirds of these in the Twin Cities metro area. That’s higher than first-quarter numbers in 2008 or 2009.
David Snyder, who works on foreclosure issues for Jewish Community Action, said JCA and the Northside Community Reinvestment Coalition are seeing three troubling trends in Twin Cities area foreclosures.
First, foreclosures are hitting tenants hard. “In North Minneapolis, investors are only ones able to buy foreclosed properties,” said Snyder. “Then, when they can’t keep the properties up, they go back into foreclosure. The properties are churned and the tenants are churned – I’ve met people who are evicted multiple times when they move from one property to another as the properties are sequentially foreclosed.”
Investors are not eligible for non-profit foreclosure counseling or federal loan-modification programs, but when they are foreclosed, he said, tenants pay the price.
Recession-induced foreclosures are a second troubling trend. More and more foreclosures are happening not because people have predatory loans, but because they are losing income, or have health emergencies. If they have a fixed-rate mortgage, but no longer have enough income, loan modification won’t help.
Suburbanization of poverty is a third trend. “People are being pushed into metropolitan margins,” said Snyder. Low-income people and people of color who owned homes in inner-city neighborhoods are losing that equity in foreclosure, and being pushed out of the cities and white, middle-class homeowners who had located in suburbs are coming back to urban core. Snyder said that racial disparities in education, health, housing and employment will be easier to ignore in the suburbs, and that the new suburban poor will have less proximity to jobs, services and transportation.
Mortgage delinquencies come before foreclosures, so a look at mortgage delinquency rates shows what lies ahead.
Mortgage delinquencies dipped slightly in the first quarter of 2010, after climbing steadily throughout the recession. In the first quarter of 2007, less than three percent of Minnesota mortgages – about 5,000 – were more than 60 days past due. By the end of 2009, that number had climbed to just over eight percent – about 16,000 past due mortgages. In the first quarter of 2010, the rate of mortgage delinquencies dipped to 7.7 percent.
Pre-foreclosure notices rose sharply, to 18,412 for the quarter. Past due mortgages do not translate into immediate foreclosure for a variety of reasons – lenders may try to work out payment plans, they may be waiting until the housing market stabilizes so they will be able to sell at a better price, or they may simply be overwhelmed with overdue mortgages and unable to process foreclosures fast enough to keep up.
National reports released this week show two more signs of trouble in the housing market. The Standard & Poors Case-Schiller home price index showed weakness in housing prices nationwide during the first quarter of 2010. In Minneapolis, housing prices dropped during the first quarter, though still remaining higher than during the first quarter of 2009.
The Mortgage Bankers Association showed a significant decline in mortgage applications in May, both for new mortgages and for refinancing.