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JEarlier this year, we wrote an article for the Island Free Press
that attempted to provide a balanced view on the fear-based headlines
about the real estate market that the public was reading and hearing.
The article concluded with the opinion that there was no question that
challenges existed in the mortgage and real estate industries, but the
overall picture was not as bleak as media reports would suggest. Since
then, news articles and television reports have continued to unnerve us
with statistics about skyrocketing foreclosure rates and plunging home
values. In this article, we would like to examine the foreclosure
environment in more detail.
Let’s begin with some summary observations and allow them to lead us
into a more detailed investigation of the various dimensions of the
foreclosure statistics. Perhaps, a statement made in June by the
Mortgage Bankers Association offers the clearest one sentence summary of
current conditions – “While the foreclosure start rates were up for all
types of mortgages…, the magnitude of the national increases is clearly
driven by certain loan types and certain states.” The Association’s
first quarter report then goes on to identify problems in California and
Florida as the main drivers of the national trend with Arizona and
Nevada also contributing heavily to the record-setting increases in the
number of properties entering the foreclosure process. These four states
combined accounted for 42 percent of the foreclosure starts in the
United States between January and March. Prime and sub-prime adjustable
rate mortgages were the types of loans most prominently associated with
the foreclosure data. The number of delinquent loans (those more than 30
days late) also increased during the first quarter.
Reports from RealtyTrac, a company that publishes the largest and most
comprehensive database of foreclosure and bank-owned properties, tells
much the same story for the second quarter. “Although much of the
fallout from foreclosures is being driven by rampant activity in a few
states, such as Nevada, California, Florida, Ohio, Arizona and Michigan,
most areas of the country are seeing at least some increase in
activity.” They also noted that some areas are seeing declines.
With these overviews to guide us, it seems clear that foreclosure
activity is increasing around the country, but four states are
responsible for a very significant portion of the increases that we are
seeing. In some ways this broad generalization is like saying the
average temperature for the United States this summer is setting
records, lead by the desert southwest. The statistics may be accurate,
but they don’t tell us a whole lot about what is happening in our local
area.
In early August, The Virginian-Pilot newspaper ran an article that
looked at foreclosure filings in northeastern North Carolina counties.
The summary lead-in to the article stated – “While the foreclosure
filings in the first half of 2008 in the eight northeastern counties is
relatively small, at 308, it’s a 1,183 percent increase from the 24
filings in the same period in 2007.” Dare County accounted for 113 of
the 308 foreclosure filings. This article provides some context for the
discussion of local foreclosures, i.e., relatively small absolute
numbers but high percentage changes. Which measure, absolute numbers or
sky-high percentages, do you think will capture the headlines? Both are
certainly valid, but the percentages elicit a much more dramatic
reaction.
Now, let’s turn our attention to Hatteras Island. After screening the
foreclosure filings for Dare County, our best estimate is that 54
properties on the island entered the foreclosure process between January
and June of this year. If we compare this figure to the total number of
privately owned real estate parcels on Hatteras Island, a little over
8,500, then we reach the conclusion that approximately six tenths of one
percent (0.6%) of the privately owned real estate parcels entered the
foreclosure process in the first six months of the year. Looked at
another way, an average of about 9 properties per month experienced
foreclosure filings.
We want to be very clear at this point. We are not attempting to
minimize the foreclosure issue. A single property entering foreclosure
is one too many in my opinion. The personal anxiety and financial
distress that are associated with foreclosures cannot be underestimated
or reduced to statistical measures, and we should always be cognizant of
the fact that there are real people with real needs and feelings behind
each of the numbers that we see and hear on a daily basis. Our goal is
to provide some perspectives on the information that is being reported.
With this sensitivity in mind, there are some other relativities that
might help us to make reasonable judgments about the impact of
foreclosures in the Hatteras Island real estate market.
- Presently, there are about 483 residential properties for sale
on the island. The Outer Banks Association of Realtors Multiple
Listing Service records reflect that only 5 of these properties are
lender-owned.
- Similarly, there are 305 unimproved lots for sale, 5 of which
show lenders as the owners.
- Two residential properties and no lots that are under contract
to be sold are identified as lender-owned.
- Ten homes out of 61 sold during the first six months of the year
were corporate or bank owned. None of the 25 unimproved lots that
were sold during this period were foreclosed properties.
- In total then, of the 8,500 privately owned parcels on Hatteras
Island, approximately 22 foreclosed properties are either listed for
sale, are under contract, or were sold (three tenths of one
percent).
It is important to note that this business of researching and
tracking foreclosures is not an exact science. For example, many of
the statistics that you have seen quoted in this article represent
the number of properties entering the foreclosure process vs. actual
foreclosures. It is very difficult to track properties from the
point that foreclosure action is initiated to the final outcome. In
fact, we think it is accurate to say that most of the properties
that enter the foreclosure process never end in full foreclosure.
The owners renegotiate the terms of the loan, obtain a forbearance
agreement, sell the property, or find some other solution, thereby
avoiding foreclosure. Moreover, the underlying databases that the
various organizations use to produce their reports are not always
the same. Therefore, our belief is that the news items that we read
should be considered directional estimates rather than definitive
statements of fact concerning foreclosure patterns.
By now, you have probably had enough of the numbers – where’s the
beef? Our observations and conclusions are fairly simple and
straightforward. We believe that foreclosure activity on Hatteras
Island is certainly important, but it is by no means of crisis
proportions. While the number of properties entering foreclosure has
been fairly constant since the first of the year, we are
anticipating that the number of foreclosure filings will increase as
adjustable rate mortgages reset over the next few years. Declining
prices may also contribute to the increase as more owners
potentially find their properties worth less than what they paid for
them. However, we do not expect that foreclosure activity on
Hatteras Island will become a predominant factor in the real estate
market. We are confident that the majority of owners in distress
will be able to work out some mutually agreeable solution with their
lenders. We also believe that actions by both the lending
institutions and by the federal government will, over time, have a
muting effect on foreclosures. Lenders do not want to own
properties, and the government does not want to see millions of
individuals and families lose their homes.
We would like to end this article with the advice that if any of our
readers find themselves in a problematic situation with their
mortgages, please seek guidance and counsel at the earliest possible
point from trusted advisors like your lender, attorney, accountant,
and Realtor. In most cases, there are a variety of options that are
available to help you avoid foreclosure. One specialist who follows
foreclosures very carefully recently expressed the opinion that 7
out of 10 property owners who face foreclosure have never sought
assistance of any kind. Whether this estimate is accurate or not,
the need for knowledgeable assistance cannot be overstated.
As you read the newspapers and listen to the television, keep some
of the perspectives offered by this article in mind. Foreclosures
are a meaningful issue at the local, national, and even at the
global level, but in the end, all real estate is local, and those
are the statistics that you want to acquire and understand in order
to make well-reasoned decisions. We will do our best to keep you
informed.
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Tom & Louise Hranicka
Associate Brokers
Outer Beaches Realty
Avon, NC 27915
252.305.1556
hranicka@hatterasisland.com
http://www.hatterasisland.com
http://www.blog.hatterasisland.com
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Copyright© 2008 Tom & Louise Hranicka. All rights reserved.
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