Foreclosures in USA impacting entire real estate economy
We predicted this 8 months ago, in this newsletter. Now over 900,000 homes in the USA have been foreclosed, and it is impacting the broad markets of banking, real estate, and even international finance.
Reports keep coming in from around the country.
Jack McCabe a real estate consulatant in Deerfield Beach, Florida recently reported over 30,000 unsold beachfront Miami condominiums.
In Nevada, 4.2% of its homes went into foreclosure with some 59,983 filings, up 169 % from 2006.
In the San Niccolo neighborhood, homes that were selling for $690,000 have dropped to $450,000.
In Orange County, California, 25% of listings are foreclosed properties.
In Newport Beach, high rise condominium units that sold for $1,150,000, are now discounting $200,000 or more.
Scottsdale, Phoenix, Chandler, Paradise Valley, all are experiencing record foreclosures, with over 13,000 homes in foreclosure, 6 times the number of 2 years ago.
Nationwide, in January of 2007, there were 6,440,000 home sales. In January of 2008, 4,8890,000. The national median price dropped from $210,900 to $201,100 during the same period. January of 2007 reported a 5.3 month supply of housing, but January 2008 reported a 10.3 month supply of homes. As for prices of homes, in January of 2007, the average price of a new home in the USA was $254,000. In January of 2008 it was $216,000. The largest price declines were in Lansing, Michigban, Sacramento, California, Jackson, Mississippi, and Riverside, California with average declines in a one year period of about 19%. State by state, the largest drop in home sales were:
- Nevada down 44.2 percent
- Wyoming down 42.4 %
- New Mexico down 38.7%
- Oregon down 38.4%
- Arizona down 37.5%
The only state to show a sales increase in housing was South Dakota, where home sales rose 8.9%.
Texas, benefited from new jobs, high oil and gas prices, and the DFW area showed over 150,000 new jobs, therefore the economy there got a boost to offset much of the rest of the nation's real estate woes, although foreclosures also increased in Texas, the market wasn't as bad as in California, Nevada, Arizona, or Florida.
In response, Senator Dick Dubin, Democrat of Ill., proposed a bill that would eliminate a provision in the bankruptcy law that prohibits modifications to mortgage loans on the debtor's primary residence, so that primary mortgages are treated the same as vacation and family farms. This bill would support long term restructuring so as to extend the time frame under which debtors are allowed to make repayment.
As Jack McCabe of Florida said: "The next two years are going to be pretty ugly in South Florida", expecting values to drop another 15% in 2009 and flatten in 2010.
On a state by state basis we looked to see what foreclosed houses were selling to investors for. We noted that most of the discounts ranged in the 23% to 29% range, with Indiana posting a high 49% foreclosure discount rate, and Ohio not far behind with a 37% discount rate.
California and Florida were at 22% and 28% respectively, Michigan at 37% and oil states such as New Mexico showed only a 14% discount, Texas a 20% foreclosure discount.
Pennsylvania was down 42% while beautiful Alaska only saw it's foreclosures down 17%.
In this recession, we asked: 'Where is the money going?' To our surprise, numerous investors said: "Texas prices are low. The state is growing because of oil, taxes are low, and the living standard is superior". Who would have thought that California, Florida, Arizona and Illinois "smart" money, would now be pouring their investment capital into the Lone Star State? Of course, Texas has done a good job of keeping a strong oil economy while expanding into manufacturing, high technology, and medical fields.