Posted on 02/23/2009 4:23:10 AM PST by cbkaty
When President Obama discusses his $275 billion mortgage bailout, he talks as if it was a national problem, caused by a national decline in home prices. "We must stem the spread of foreclosures and falling home values for all Americans," he says. But there is no national market for homes and no national price for homes. Instead, most of the United States will pay for the folly of few.
The beneficiaries of taxpayer charity will be highly concentrated in just five states - California, Nevada, Arizona, Florida and Michigan. That is not because the subsidized homeowners are poor (Californians with $700,000 mortgages are not poor), but because they took on too much debt, often by refinancing in risky ways to "cash out" thousands more than the original loan. Nearly all subprime loans were for refinancing, not buying a home.
It turns out that the five states with by far the highest foreclosure rates have some things in common with each other, but very little in common with most other states.
I studied the latest available figures for state foreclosure rates, changes in home prices over one and five years, existing home sales, the percentage of mortgages that are underwater, and unemployment. Then I compared figures for the five most foreclosure-prone states with New York and also with the 25th-ranking (median) state.
One out of 76 homes in Nevada went into foreclosure in January, for example, compared with one out of 173 in California, with Arizona and Florida close behind. In New York, by contrast, only 1 out of 2,271 homes went into foreclosure.
Nationwide, foreclosures fell 10% in January, to one out of every 466 homes. But that is a "mean" average dominated by places like California and Florida. In the median state with the 25th highest foreclosure rate, by contrast, only one out of 949 homes was in foreclosure - just one-tenth of 1%. Foreclosure rates were even lower in 25 other states. In Vermont, foreclosures amounted to just one out of 51,906 homes. Foreclosure can be a personal crisis, but it is not a national crisis.
Now consider the change in home prices between the third quarters of 2007 and 2008, using the OFHEO price index - the only measure available by state. Like most of the new mortgage-relief plan, the OFHEO index covers mortgages that qualified for Fannie and Freddie financing. It excludes jumbo mortgages larger than $729,750 in high-cost areas like New York City.
As of the third quarter of 2008, OFHEO home prices were still higher than a year before in 18 states, and down less than 2% in a dozen others. Double-digit declines in home prices were confined to just four states - surprise, every one of the Foreclosure Five except Michigan.
Even though California home prices fell 20.8% over the year ending in the fall of 2008, however, they were still 50% higher than they were just five years ago. In Florida and Nevada too, the bust in home prices obviously followed a speculative boom. Back in April 6, 2008, a New York Times graph showed that default rates on only the riskiest subprime mortgages had already reached 21% in Merced and Stockton, California, and ranged from 19% to 24% in Fort Myers and Naples, Florida.
So what's happening now? By looking at sales, you can see the free market is working very well. Sales of existing homes over the past year have soared in four states where home prices fell the most. Reducing the inventory of unsold homes, foreclosed or not, makes it easier to sell remaining homes and thereby works to arrest falling home prices. Falling home prices are not the problem, they're the solution.
Obama is particularly interested in mortgages that are underwater - that is, larger than the value of the home. But again, this varies enormously by state. The state with the tenth highest percentage of underwater mortgages, Texas, has the same 16.5% underwater as the so-called national average. The other 40 states have a below-average percentage of homes that are worth less than their mortgages, which means the mean average is not at all typical of most states.
A similar report from First American Core Logic reports that only 4.4% of New York mortgages are underwater, not even a tenth as many as in Nevada.
Looking at the Foreclosure Five, you find another consistency - unemployment rates far above the national average (half the states were below 5.9% in December).
The exception is Arizona, where unemployment is a more reasonable 6.9%. Stephen Miller of the University of Nevada and Rangan Gupta of the University of Pretoria explained the apparent anomaly by explaining that migration and the market for second homes make Phoenix housing dependent on economic conditions in Los Angeles and Las Vegas. Miller and Gupta found that "Los Angeles housing prices cause housing prices in Las Vegas (directly) and Phoenix (indirectly). In addition, Las Vegas housing prices cause housing prices in Phoenix" to rise or fall in step.
Boosting the Obama team's selective mortgage subsidies, Mark Zandi of Moody's Economy.com recently told NBC, "either you can help your neighbor, and help them so they can stay in their home. Or don't help them, and they'll lose their home, and it will cost you money, because . . . your home will have just dropped in value." On the contrary, federal subsidies for over-indebted homeowners will not often involve helping "neighbors" but rather those who live thousands of miles away, mainly in just five states.
In reality, the "Homeowner Affordability and Stability Plan" compels taxpayers in most states to help those in just a few. Aside from Michigan's unique dependence on autos, the other four states' problems are already being solved the old-fashioned way: If something becomes too expensive, cut the price. Or move.
The continuing story of the two truths, or is it that thepresident and congress speak with forked tongue.
Must have something to do with follow the money, or an agenda or two. Just where would we be without internet research?
I saw where some 1500 square foort houses in the Inland Empire” (East of L.A.) of CA were selling for $250,000 one year ago and $320,000 six month ago are now on the market for less than $100,000.
Illegals, ragheads and unions.
It looks like 4 of the 5 had the largest run-up in real estate values while the 5th (Michigan) is just flat-out depressed.
something the author missed. those same five states have a high percentage of illegal immigrants and they are responsible for many of the foreclosures and will be compensated with bailouts too, i guess.
bfl
Remember, last year Wells Fargo was giving mortgages to illegals. Just another reason I’ll never give them any of my money.
you should see the insane amount of home owner association developments in fl.
California: Illegals (2.9 million?)
Nevada, Arizona, Florida: Retirement homes. Retirement funds go south...
Michigan: Unions, corrupt gov and mayors.
JMHO
Pelosi & Reid want to do for the country what they have done for their states! Now they want our $$$ to bail out the mess they’ve helped make.
Yep, with the exception of Michigan, all of these states are overpriced, overrun with illegal aliens and have real estate valuations far beyond what reality should support. So it makes no sense whatsoever that the other 45 states should prop up these five.
Michigan, I must admit, is a special case because it makes a corrupt, rust-belt state like Pennsylvania look exceptionally well-managed.
Michigan’s problems are different from the other 4.
You can get a pretty good deal in unincorporated Antelope Valley (Lancaster/Palmdale) nowadays...if you don’t mind Section 8 squatters on both sides of you.
Beg to disagree. Arizona is not overpriced, over valued, or overrun.
I don’t know how many illegal aliens there are in Florida, but I’ve always simply associated Florida with rampant real estate overspeculation in recent years.
Obama has made us all unwilling buyers of overvalued real estate...regardless, those properties will eventually be priced at market value...there is no way around it....
Disagree on the "over valued". My modest manufactured home in the boonies of NW AZ, which I purposely bought as they're not supposed to increase in value, just had a 15% increase in assessed value. I'm contesting it.
Oh man...this is exactly what I want to do (used to work in that area).
Glenn Beck is discussing this now....FNC (Fox).
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