King County Foreclosures Keep Rising

April foreclosure stats from RealtyTrac have been released. No surprise: area foreclosures still on the rise.

More Seattle-area homeowners are facing foreclosures this month, but the region remains far below the national rate, according to new statistics released Tuesday.

The Seattle area, defined as King and Snohomish counties, had 760 foreclosure filings in April, up 16.7 percent from March, but down 2.2 percent from April 2006, according to RealtyTrac, an Irvine, Calif., company that tracks foreclosure filings. The April rate of one foreclosure per 1,287 households -- better than the national rate of one for every 783 households -- ranked the region 128th out of 229 U.S. metro areas.

"Washington has really not followed into what is happening nationwide," said Marc Gaspard, administrative director of the Washington Mortgage Lenders Association. "Certainly if you look at the Puget Sound region, our housing market may have slowed a little bit, but it's still a very strong market."

King County alone had a much worse month, with foreclosures up 37 percent from a month ago and 1.7 percent from April 2006. Its rate, however, still was lower than the national rate, one foreclosure for every 1,347 households. State foreclosures were up 1.15 percent from March and 7.2 percent from a year ago, with one per 1,396 households -- good for 23rd among states.

Although the trend is up, it is true that foreclosures are only slightly up. However, even without an economic downturn (local or national) things can change quite quickly.

But don't you worry, we're special. That will never happen here. The real estate agents quoted in the paper told me so.

(Aubrey Cohen, Seattle P-I, 05.15.2007)

King County Foreclosures Up 27% YOY

Couched in the mind-numbing bubbly language of a press release from Default Research comes this tidbit of information:

"Foreclosures increased by 27 percent in the Seattle area. That is an increase from this time last year," said Serdar Bankaci, president/CEO of Default Research Inc.

Cue the "but we're coming off of historic lows!" nonsense in 3... 2... 1...

P.S. (Does anyone know where to find historic foreclosure / default data for King County? I've had no luck locating a source for such data beyond the occasional press release like this one.)

(Default Research, PRNewswire, 04.11.2007)

Bubble Link Roundup

Here are a few short quotes from some recent interesting articles (followed by some pithy one-liners) that I haven't had the time to dedicate entire posts to:

Slumping sales of lots could presage fewer new houses for region

A key future indicator of the housing market is down sharply, but that could be a good thing, local real estate executives are saying.

Puget Sound area home builders have been buying substantially fewer finished lots from residential developers as the builders try to gauge the demand for their new homes in the months ahead.

Builders buying fewer lots today could mean fewer new homes tomorrow.

"Finished lots are hanging around longer than they have in quite some time," said consultant Matt Gardner, a principal at Gardner Johnson LLC in Seattle.

But, I thought the Seattle market was still hot, hot, hot!

Generous pay isn't enough to keep some on the road

The number of commuters in South Sound continues to grow, but some people are bucking the trend.

They've quit.

Melinda Spencer of Olympia took the step a few years ago. Spencer used to commute from Olympia to her job as a technical writer at Redmond-based Microsoft, where she earned about $73,000 a year.

Making that kind of money, Spencer's husband, Keith, could complete his degree at The Evergreen State College, and they could invest in property. In 1997, the couple paid $110,000 for their Olympia home.
...
Yet after three years of driving to Redmond, spending three hours in her car each day, something had to change. "It was awful," she said about her commute. "I felt like I showered (in the morning), ate (at night), and turned around and did it all over again. It was time to end this lifestyle."

She ended it by starting her own home-based technical communications business. Another reason to stay home was the birth of her first son, she said. Today, her husband works as a high school teacher in Rochester, while Spencer works at home and raises their two children. The money is tighter. Spencer estimates their combined income at just more than $2,000 a month after taxes and health insurance are deducted.

But in the 10 years they've owned a home, it has tripled in value to $300,000; they would be unable to afford it today, Spencer said.

"We would be looking at one of those old dogs that has been foreclosed on," she said.

Isn't appreciation wonderful?

Home bailout scams on rise

As interest rates rise, many people with adjustable-rate mortgages find their payments too high to manage. That has paved the way for con artists offering relief.

WASHINGTON – As home foreclosures increase across the country, scam artists promise struggling homeowners a quick bailout, but they end up stripping the properties of their value or owning the homes outright.
...
State officials urge cash-strapped property owners – particularly the elderly, immigrants, minorities and low-income – to be wary of mailings, phone calls and visitors offering to help "save your home" and "avoid foreclosure."

The Washington State Attorney General's Office recently settled a suit against three businesses that claimed to save the homes of people who were facing foreclosure for unpaid property taxes. The companies – Fiscal Dynamics Inc. and Cumulative LLC, of Tacoma, and Northwest Assets of Seattle – allegedly broke promises to pay the back taxes and instead tried to sell the houses at auction and keep the owners' rightful proceeds, according to the complaint.

Now wait just a minute. How can people possibly be facing foreclosure in the fantasy rainbow-land of forever double-digit appreciation? Hmm...

Last and most certainly least: Average Seattle worker can't afford to live here

Last year, the typical single person in Seattle earned enough to buy a home for just under $200,000 while the typical family of four had enough to pay just over $280,000, according to the U.S. Department of Housing and Urban Development. The median prices were about $450,000 for a house and $290,000 for a condo.

Typical families can afford apartments, but the rent for the average one-bedroom apartment in King County rose 8.5 percent in the past year as vacancies fell 17 percent — down to 3.9 percent, according to Dupre + Scott Apartment Advisors. Hal Ferris, a partner in developer Lorig Associates, said increasing construction prices mean living in a new development will cost more than what HUD assumes typical families can pay.

And many median-income workers choose to buy and commute rather than rent.

"They can buy somewhere, but that somewhere isn't in the city of Seattle," said Adrienne Quinn, director of the Seattle Office of Housing.

First off, I'd take that data from Dupre + Scott with a giant frikkin' grain of salt. Secondly, government solutions like the ones discussed in this article are like putting a band-aid on a tumor. They completely ignore the root cause of the problem, and don't even effectively address the symptoms.

(Jeanne Lang Jones, Puget Sound Business Journal, 03.26.2007)
( Rolf Boone, The Olympian, 04.01.2007)
(Tony Pugh, Tacoma News Tribune, 04.02.2007)
(Aubrey Cohen, Seattle P-I, 04.02.2007)

Seattle Immune to Financing Woes?

When the question is "how will the current home lending meltdown affect the housing market in Seattle," the answer depends on who you ask. For instance, if you ask #1 Seattle real estate cheerleader Elizabeth Rhodes, the answer is something to the effect of: "Seattle is special. Don't worry your pretty little head about it."

Q: Local real-estate experts keep saying Seattle's housing market will stay strong because the local economy is strong. But I think all the subprime loans going bad will mean a lot more houses on the market and prices here will sink. Why don't you report that?

A: Let's start with an interesting fact from Douglas Duncan, chief economist for the Mortgage Bankers Association: More than one-third of all homeowners have paid off their mortgages (or paid cash). This significantly decreases the potential for overall risk.

However, the growing crisis in the subprime mortgage industry, fueled by an increasing number of mortgage defaults, is real.

How much of an effect it may have is very location-sensitive, said Bob Visini, a spokesman for LoanPerformance, a California company that tracks nationwide mortgage activity.

The Seattle/Bellevue/Everett area "is exposed," but way down the list, Visini said.

The Seattle area is in the bottom 20 percent for subprime mortgages among 331 major metropolitan areas — far below other parts of the country, particularly parts of Texas and California's Central Valley where subprime accounts for nearly a fifth or more of all mortgages. At the top of the list was McAllen, Texas, where some 26 percent of loans are subprime.

By comparison, only 7.9 percent of all Seattle-area mortgages were subprime at the end of 2006 (ranking 278th out of 331), down from 8.7 percent the previous year.

And only a fraction of those loans were in trouble — some 7.6 percent at the end of 2006 were 60 days late or more, a sign foreclosure is looming. This put Seattle in the bottom 10 percent.

Those are certainly some convincing statistics Ms. Rhodes has pulled out. Unfortunately, she still employs her mad misdirection skillz in composing the answer. The reader didn't ask "how does Seattle's rate of subprime mortgages compare to other cities?" Nor did they say "the subprime lending implosion is already affecting Seattle." Rather, they pointed out the high likelihood that the subprime mess will adversely affect Seattle's housing market. Granted, it may not affect Seattle as much as other areas with higher percentages of subprime loans, but there is no reason to believe that it will not have any affect.

On the other side of the media spectrum, ask Mike Benbow of the Everett Herald the same question, and he might say: "Foreclosures are already on the rise, and will likely increase. If the country heads into a recession, the housing market will almost certainly suffer even more."

Others are using risky loans, such as those where they're paying only interest for a while, to get into homes they can't afford. That can only lead to trouble.

In fact, it already has.

A recent article in the Puget Sound Business Journal quoted RealtyTrac Inc. as saying there were 2,377 foreclosures on homes in Snohomish County last year, a 35 percent increase over 2005.

That was lower than King County, where foreclosures rose 41 percent, and Pierce County, which showed a 58 percent hike. But it was higher that the 25 percent increase for the state as a whole.

Such a sharp increase in foreclosures tells us there are problems in the industry.

A local or national recession could trigger even more.

What am I trying to say here?

I guess that a rising local economy has kept the housing market relatively strong locally, but that things could change rapidly if economic circumstances change. Now, more than ever, home buyers should be careful about the types of loans they're using and not expect home appreciation to bail them out of a purchase they never should have made.

Wow, it's refreshing to read something that honest in the media once in a while. Foreclosures up 41 percent in King County? Funny, I must have missed the article in the Times where Ms. Rhodes covered that. I thought our housing market was the picture of perfect health. How could foreclosures be rising so quickly? Hmm.

(Elizabeth Rhodes, Seattle Times, 03.17.2007)
(Mike Benbow, Everett Herald, 03.19.2007)

Foreclosures On The Rise, Even In Seattle

Here's some interesting news. Apparently even double-digit appreciation isn't enough to keep foreclosures from rising around here, much like they are across the country:

Following a national trend, Washington state's mortgage foreclosures increased significantly last year, claiming 18,527 homes.

In the Seattle/Bellevue/Everett area, one in every 136 homeowners was displaced by foreclosure, as was one in every 75 Tacoma owners.

Still, the state and the Seattle area faired better than the nation as a whole, according to RealtyTrac, a California-based foreclosure-information provider. It released its 2006 annual report late last week.

Washington state foreclosures grew 25 percent last year compared with a year earlier — far below the national increase of 42 percent.

Phew! Thankfully we're safe because we're "far below the national increase."

However, since Ms. Rhodes mentioned that we are "following a national trend," and given the assumption that the Seattle housing market lags most of the nation by six months to a year, I wonder how much foreclosures increased nationally in 2005?

Let's see... Ah, here we go:

January 23, 2006 – RealtyTrac™ ... today released year-end data from its 2005 U.S. Foreclosure Market Report, which showed that 846,982 properties nationwide entered some stage of foreclosure in 2005, and a 25 percent increase in the number of new foreclosures from the first quarter to the fourth quarter.

Hmm, interesting.

(Elizabeth Rhodes, Seattle Times, 01.27.2007)

Elizabeth Rhodes: Master Of Misdirection

Wow, Elizabeth Rhodes is on a real anti-bubble roll this weekend. Did one of you submit this letter to her "Home Forum" Q & A?

Q: I keep reading that home prices aren't expected to decline in the Seattle area. Aren't you overlooking the possible effect of "suicide loans" — those adjustable-rate mortgages that are common and dangerous? I think the interest rates on those loans will go so high that many will be forced into foreclosure. Won't that produce a glut of for-sale homes that will force prices down?

A: Let's start with the basics on those adjustable-rate loans.

The riskiest are teaser-rate loans. These start at an exceptionally low interest rate (like 2 to 4 percent), then reset upward later to a higher rate that can double the borrower's monthly payment. Obviously borrowers who can't refinance out of these loans are at great peril — particularly if their loan has allowed them to make interest-only payments, their home hasn't appreciated much and they have little equity to work with.

However, it's not a given that foreclosure is in their future. If the local economy is robust, jobs are plentiful and housing demand is strong about the time their loan resets, holders of teaser-rate loans have options. They may be able to increase their income and keep the house or find a buyer and escape foreclosure.

Okay I have to stop right there. "They may be able to increase their income"?!? Did she really just say that? Yeah, it's that easy Ms. Rhodes... When Mr. & Mrs. Too Much Homebuyer find that they can't afford to make their payments, why they'll just get new jobs that pay more!

Maybe I'm confused, but aren't there cities right now (San Diego, Sacramento) that have "robust economies" with "plentiful jobs" and yet are still experiencing a decline in prices? It seems to me that the one and only component that matters is that "housing demand is strong." Oh, and incidentally, housing demand is weakening across the nation, and even here in Seattle.

Moving on.

These loans can reset more than once, from one to 10 years after origination — meaning there's no one point at which distressed sellers will flood the market. Obviously, it's impossible to forecast whether the economy will be good years from now, allowing them to ride it out. Maybe it will. Maybe it won't.

Okay, so we admit that basically "who knows" if it'll be a problem or not...

Loan Performance, a San Francisco-based mortgage-information provider, calculates that teaser-rate loans comprise 13 percent of mortgages in the Seattle-Bellevue-Everett area. Since January 2005, teaser-rate foreclosures have consistently been lower than 1 percent a month.

Did you catch what she did there? The question was about adjustable-rate and "suicide" loans in general. However, Ms. Rhodes decided to shift the focus to solely "teaser-rate" loans, and then provided a statistic that shows "only" 13 percent of local mortgages fall under that specific category. What about non-teaser-rate loans such as plain old ARMs, negative amortizing, payment-option, etc.? Excellent use of misdirection, Elizabeth.

Furthermore, of course foreclosures are still going to be low for our area. As long as we're still experiencing double-digit year-over-year appreciation, it's easy to sell or refinance your way out of a risky loan. It's as though Elizabeth forgot the question (or more likely, just didn't feel like answering it), which was about where we're going, not where we've been or are.

I'm not going to bother quoting and responding to the rest of her answer here, because she's obviously chosen to answer a completely different question than what was asked. Go read it for yourself, and if you're convinced that her answer is sufficient, I guess you should go out and buy a house for 10 times your yearly income on a negative-amortizing, payment-option, no-money-down, adjustable-rate loan.

(Elizabeth Rhodes, Seattle Times, 09.30.2006)

Area Foreclosures On The Rise

Even though our area doesn't have as high of a foreclosure rate as you might expect, the toxic loans and suicide financing are still having somewhat of an effect...

In Seattle's hot real estate market a growing number of people are losing their homes in foreclosure.

For most people losing their homes, there are several investors waiting to snap them up.

In Washington state the foreclosure rate is up nearly 30 percent over last year, and more than 1,000 homeowners have been going through foreclosure this past year.
...
Why are more people losing their homes?

Experts say interest only and adjustable rate loans are enticing buyers into trouble.

"So they can get into their dream house when maybe they should have waited a few years when their income went up and not taken these risks," said lender representative Karen Gibbon.

In other news, experts say that when an egg is dropped on the sidewalk, it is likely that it will break. Who can blame those overeager buyers though? I mean, they're just trying to live out The American Dream™, right?

(Linda Brill, KING 5 News, 08.04.2006)

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No Foreclosure Deals... Yet

In a real estate advice column this weekend, Everett Herald reporter Steve Tytler explains the difficulty of finding good foreclosure deals in Seattle's still-at-least-lukewarm market:

Question: Where can I learn about investing in foreclosures?

D.E., Renton

Answer: There are some truly extraordinary bargains to be found in the foreclosure market. Unfortunately, finding these bargains is like finding a needle in a haystack. I know, because I have tried to find them myself. To listen to the late-night TV real estate hucksters, you'd think people in foreclosure are just waiting to give their house away for half its fair market value. Nothing could be further from the truth.

Think about it for a minute. If you lost your job and fell behind on your mortgage payments, are you going to hand me the keys to your house just because I've shown up on your doorstep to save you from foreclosure? Probably not. Most people want to keep their homes, and in the vast majority of cases, they find a way to come up with enough money to head off the foreclosure auction.

Or if they can't raise the money, they put their home up for sale through a real estate agent and attempt to recoup as much of their equity as possible before the foreclosure auction.

It's true that as long as the market is at least a little warm, there just aren't going to be many deals in foreclosures. However, I think we all know what will happen when things level off and/or start to decline—combined with rising interest rates... That will be the time to be in the market for foreclosure properties.

(Steve Tytler, Everett Herald, 04.23.2006)

Foreclosures On The Rise In King County

I generally dislike giving any attention to self-advertisements (a.k.a. "press releases") on here, but I thought that a bit of info contained in this horn-tooting by Default Research was worth mentioning:

Foreclosures increased by 2.04 percent in January in King County, according to Default Research..."

2.04% might not be really a big enough number to be a sign of things to come, but it's at least worth a short post.

(PR News Release, PRNewswire, 02.08.2006)