The Housing Issue

As you can see from this convenient map drawn from my short print article on foreclosures in the new issue of The Atlantic, neither Iowa nor New Hampshire is a place that's bit especially hard-hit by the wave of foreclosures afflicting the country. Thus, a potentially huge political story hasn't really gotten much political play with all the candidates focused on the early states and all the political press focused on the candidates.

That's about the change. Clark County, Nevada comprising Las Vegas and its suburbs is one of the very hardest-hit places in the country, and Florida and California are full of badly afflicted counties. Since neither candidates has staked out a clear profile on this topic, it seems like a good opportunity for both of them to try to exploit.

Comments

How do they exploit it? Those were some of the most overheated areas, and the problem is a speculative bust that is pulling down the market. Any promises they make will be like promising in 2001 to bring the NASDAQ back up to 5,000 in a couple of months.

Posted by Helter | January 9, 2008 2:28 PM

And/but, did you hear Hillary foreground the foreclosure issue in her NH victory speech? Perhaps every bit as effective a move forward as Obama's "yes we can" / si se puede riff ...

Posted by Ottoe | January 9, 2008 2:31 PM

We should have an 8 state system, not a 4 state system.

Start with 4 small states, including IA & NH, once a week. Then move to 4 medium states, again once a week.

Then have 2 or 3 big regional primaries with two weeks spacing between them. Have a mini-convention in May to allow for multiple ballots if necesssary to determine the nominee - you could even do it via tele-voting to avoid a messy spectacle - and then have the Big Show in August.

Put in a NYC/Arizona style mega-matching system so you can fund it on small donations, and we'd have a pretty good democracy for the executive branch.

Posted by Petey | January 9, 2008 2:33 PM

that map is interesting on its own merits. what is up with Tennessee? Its borders w/ everyone but Georgia look like stark demarcations of foreclosure rates. do banks have a freer hand there? was the bubble bigger there, or did it burst sooner?

somebody drop some knowledge

Posted by wtf tenn | January 9, 2008 2:38 PM

that map is interesting on its own merits. what is up with Tennessee? Its borders w/ everyone but Georgia look like stark demarcations of foreclosure rates. do banks have a freer hand there? was the bubble bigger there, or did it burst sooner?

somebody drop some knowledge

Posted by wtf tenn | January 9, 2008 2:38 PM

Didn't know that Colorado was a hotspot for foreclosures. There's also that little spot in Northern Virginia.

Posted by MattF | January 9, 2008 2:39 PM

Can't subprime mortgage victims just go to the emergency room?

Posted by dubya antionette | January 9, 2008 2:40 PM

aside for "bailout on the way" what could a candidate say?

Posted by freddiemac | January 9, 2008 2:47 PM

Same comment on TN as wtf.

A lot of those counties are pretty rural, so they weren't subject to the sub/urban price runups that messed up most of the shaded markets. And as a current Memphis homeowner, I didn't find the mortgage process any different than I did in GA or IN.

Posted by Richard | January 9, 2008 2:49 PM

"Both" candidates? So we're down to two now?

Posted by DanF | January 9, 2008 2:49 PM

Florida has no delegates.

Posted by SP | January 9, 2008 2:49 PM

What is the liberal position on the house issue. I mean, sure, we'd all like to see predatory lending stopped. But how does it go any farther than that?

Posted by Adrock | January 9, 2008 2:55 PM

"Didn't know that Colorado was a hotspot for foreclosures. There's also that little spot in Northern Virginia."

Colorado has been about two years ahead of the national real estate meltdown. There was a big run up in prices prior to 2001 or so due to the tech bubble, and then huge stagnation (even declines in the exurbs) after it burst. The reason that Colorado looks so bad is that you are seeing its foreclosure peak (actually, just after the peak -- which was in early 2007 if memory serves). A bunch of other states are going to look that bad in two years.

Posted by Joe | January 9, 2008 2:56 PM

The political solution to the housing bubble is the same as the political activities that created it in the first place...

Aside from cracking down on the banks who finance their political careers (haha not gonna happen), the only option is to devalue the currency further with more artificially low interest rates and more deficit spending.

Inflation, inflation, inflation!

REAL Home values are going down, hard. Period. End of discussion. There's no dodging that bullet. NOMINAL values could be saved through political intervention, but your house in 2009 is going to buy fewer barrels of oil, bushels of wheat, or bars of gold.

Posted by independent | January 9, 2008 3:03 PM

"There's also that little spot in Northern Virginia."

I'm no economist, but I do live in Northern Virginia and recently bought one of those foreclosures. The bubble had been pretty bad around here recently. Even in the DC area, there are only so many people on lobbyist incomes. Loudoun County particularly had seen an incredible amount of housing going up in an extremely short time. Up until about a year ago, they were still making houses for $750k for a forty- or fifty-mile commute into the District. I got the impression that most of the housing was financed by people whose base incomes were high enough that the banks didn't look too closely at the numbers. They took out ARM's and bought their house, some of them with the intention of flipping.

Then, two things happened. First, all of that building at $750k raised property values artificially. Some people who'd planned on paying lower property taxes were hit with a reassessment that basically forced them out. I suspect some of the foreclosures were from that. But then all of a sudden the banks got nervous, and people weren't able to get credit. So you had a whole bunch of houses on the market, and fewer people chasing it. That $750k house dropped in price by about $200-300k - down to something much closer to what it's actually worth. All the speculators got socked.

So yeah, basically the same story that's been going on elsewhere.

Posted by Tel | January 9, 2008 3:25 PM

Good point. From a read of the polling and exit-polling thus far, this should cut for Hillary, based on her support amongst the poor and those who are pessimistic for the future.

On the other hand, Obama has specific, personal history with housing problem from his time as an organizer in Chicago. If he can get that narrative out there, it could reverse some of HRC's gains amongst the downtrodden....

Posted by jamois | January 9, 2008 3:27 PM

Um, no...

Clark County is one of the "hardest hit." Meaning 4.5% of all housing units under foreclosure.

Not owner-occupied homes, but housing units. In other words, the number includes vacation condos and speculative plays in the hottest construction market in the country.

So the owner-occupied home number will almost certainly be lower. Now factor in the % of foreclosures among non-citizens (a huge population in Vegas, and more likely to be low income and vulnerable to foreclosure).

So the owner-occupied home number where the owner is a citizen is likely to be lower still. Now factor in people who lost their homes and moved to another geography (likely a big number - given the growth of Vegas many residents - especially younger and lower income residents are not originally from the area, and when people hit a rough patch they oftem move back to their original home).

So the owner-occupied home number where the owner is a citizen who still lives in Vegas is likely lower still. Now factor in the fact that people in the income brackets most likely to default don't vote at a very high rate.

All-in, the % of Clark County residents directly impacted by the "crisis" is so small as to hardly register in an election.

P.S. To those who suggest that the "liberal response" to this ought to be a crackdown on predatory lending - just keep in mind this will result in it being much much harder to get a home for the vast majority of low income people who get sub-prime loans and never default.

Posted by sd | January 9, 2008 3:32 PM

but your house in 2009 is going to buy fewer barrels of oil, bushels of wheat, or bars of gold. - independent

That's the real question, ain't it? How much are homes really costing nowadays vs. how much has housing cost in the past? N.B., money is just a medium of exchange ... how much wheat, oil or whatever are people having to give up in order to obtain housing?

Some would argue that all those people who have had to default on home loans are to blame for their own problems because the "over-extended" themselves. But what kind of housing was available to them? What real choice did they have? To keep renting and then end up in the long run paying more in rents?

Isn't there a fundamental issue of the availability of affordable housing? And what do we do about it?

I guess the market solution is essentially to wait for the market to correct itself -- i.e. for real home prices to get back down to something reasonable. But how long will that take? And how much collatoral damage will happen?

Posted by DAS | January 9, 2008 3:37 PM

DAS,

If you look at the map, I think you will find a high percentage of foreclosures were in geographic regions that are very affordable. For example, see metro Detroit. It has both high foreclosures and cheap housing. Chicago too. Heck, I don't know the specifics of DC but I know that they were selling 40 year loans to kids in the burbs but the city itself has barren regions.

I view this in terms of the American trend of equity destruction. What we see now is just an extraction of what happened in cities 30 years ago, just now it is happening in the suburbs and is therefore "newsworthy".

Posted by freddiemac | January 9, 2008 3:43 PM

Would it be possible to get the data source for this map?

Posted by apikoros | January 9, 2008 4:12 PM

DAS, I agree with you much of what you say, but if we are talking about a matter of choice and there are alternatives to affordable housing, including renting, then it boils down to human behavior.

"Wait, so you mean I could live in this better house for a monthly price I can afford?" Many people make decisions over what they can afford on a monthly basis. But beyond speculating what most people did, the fact is that people can make bad financial decisions for themselves.

I guess my sympathy wanes with the fact that in my own situation, where I rent in largely upscale communities (New England seacoast) because the houses are too expensive (400-600K) for me to afford a 30 year fixed rate mortgage. It happens to be the case here, although not sure in other areas, that rent prices don't necessarily track with housing and so I can afford a decent place for rent. I just think it would be way more risky of me to get an ARM than to waste my money on rent, because rent is much more predictable and does not come with the same financial responsibility.

Its my choice to be cautious of risky situations.

Posted by Adrock | January 9, 2008 4:24 PM

follow on to sd a few posts above: many banks stretched to make their low income community investment requirements by using sub-prime lending. It will be hard to protect low-income/minority lending volumes in a credit tightening scenario -- more on this when all the resets happen -- we aren't on the peak of the reset wave yet and refinancing will be extremely difficult.

Also, in many areas, renting a place was economically better than owning, even after accounting for taxes and long-term equity growth. It gets even better when the lease vs. buy savings are invested in the market.

Posted by mike c | January 9, 2008 4:36 PM

On second thought maybe this was another chance for Matt to plug his print article and show his pretty map again. Can't have that fall in the dustbin now can we?

Posted by freddiemac | January 9, 2008 4:46 PM

As another resident of Memphis, I've also been wondering what's the deal with TN on that map.

Whatever makes the TN foreclosure rate so high, it's not the housing bubble bursting, because there's been no bubble here.

In fact, during the period Feb. 2006 - Feb. 2007, while the foreclosure rate in FL jumped 91% and CA jumped 79%, foreclosures in TN dropped 17%.

Posted by Brock | January 9, 2008 4:53 PM

Adrock,

Do you think that there were people in your region that bought housing they couldn't afford? From my experiences, people decided to own instead of rent because of the lurid riches promised to them on "property ladder" and "flip that house". So they bought into homes where they could barely make the money payment before rates started to inch up, and as the ARMs reset the monthly payments became unaffordable and BOOM subprime implosion. Perhaps this would explain was renting in your region was much more affordable than owning?

Posted by freddiemac | January 9, 2008 4:55 PM

Would it be crude to observe that in that map, America's penis (Florida) has syphillis?

Posted by Crude | January 9, 2008 5:30 PM

WFTenn:

This week saw some construction related business articles coming out of Tenn. Sounds like residential construction is at a standstill. First I had heard of Tenn. having problems myself.

Brookings institute did not that it is areas where the cost of living is low that actually have the larger problems with people getting into credit difficulties. They were not sure why, but they speculated that it is easier for people in these areas to get the credit that gets them in trouble when they hit an economic rough patch. Charlotte, NC with a booming economy and one of the few markets were home values have gone up, has also had a high foreclosure rate.

Posted by russell120 | January 9, 2008 7:21 PM

The political liberal response to the foreclosure crisis is simply to stress the economic anxiety issue in general. I don't think either candidate would be well advised to make some cockamamie proposal based on dubious economics that would give his/her opponents fodder for attacks. Just keep it simple by stressing things like the healthcare crisis, the unfair tax code, etc. The problem for Obama is that it's not going to be overly simple for him to pivot from focusing incessantly on getting along with Republicans to providing the deliverables craved by economically stressed middle class voters. Advantage Hillary.

Posted by Jasper | January 9, 2008 7:29 PM

Re: but your house in 2009 is going to buy fewer barrels of oil, bushels of wheat, or bars of gold.

How many people trade their houses for barrels of oil and the like? The most common purchase from the proceeds of selling a house is...another house.

By the way, is there a major urban area that isn't hard hit? Dallas-Ft Worth reputedly had undervalued real estate despite the bubble, yet it too looks like a hot spot. The story isnlt just a bubble (true mainly in real estate boom markets like FL, CA etc.) but also the increased use everywhere of exotic loans with steeply escalating payments.

Posted by JonF | January 9, 2008 9:59 PM

Looks like Worcester County's doing roughly.

Posted by Ben Cronin | January 9, 2008 10:44 PM

As a resident of Denver, I will second the fact that Denver and Colorado in general were hit extremely hard post-2000/2001 as a result of the huge Technology/Telecomm collapse literally crushing Denver’s two main growth industries at once. However, Denver lucked out, in that its housing crunch was rescued by the loose credit post-2001. So this spurred even more building, including condos, which are still being built due to projects which were in the works prior to August 2007.

Denver is going to get even worse in the next year to two, especially in places such as Longmont, and some of the exurbs where speculative builders such as Centex and KB have been putting up gigantic, crappy developments along the entire Northern part of the I-25 corridor. Places such as Erie, Firestone, Northglenn all the way up to Greeley.

This is what is so scary about Denver’s foreclosure rates – they are already high, before the impact of the credit and solvency crisis.

Posted by Brad | January 10, 2008 1:19 AM