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Local Foreclosures Continue Climb

Aubrey Cohen of the P-I reports on the continuing trend of the increasing number of local foreclosures. Skipping over the article’s pointless comparisons with other parts of the country that are clearly ahead of Seattle on the bubble-bursting curve, here’s the meat of what’s going on around here:

Area foreclosure filings in July were up 21.5 percent from June and 44.6 percent from July 2006. Filings in King County alone were up 27.8 percent from June and 34.2 percent from July 2006.

Washington state filings were up 8.9 percent from June and 49 percent from July 2006. Nationwide, filings were up 9 percent from the previous month and 93 percent from a year earlier.

Here’s a graph of monthly King & Snohomish foreclosures since October of last year, to help you visualize the recent trend:

Nobody worry though, despite rapidly decreasing rates of appreciation with almost certain price deflation on the horizon in the face of a much tighter lending market and a possible national recession, Seattle is different from the rest of the nation and will soon see foreclosures level off. They definitely won’t continue rising to eventual record highs. Why would they? I can’t think of a single reason.

(Aubrey Cohen, Seattle P-I, 08.21.2007)

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About The Tim

Tim Ellis is the founder of Seattle Bubble. His background in engineering and computer / internet technology, a fondness of data-based analysis of problems, and an addiction to spreadsheets all influence his perspective on the Seattle-area real estate market. Tim also hosts the weekly improv comedy sci-fi podcast Dispatches from the Multiverse.

31 comments:

  1. 1
    JP says:

    It seems clear that foreclosures have increased dramatically in our area recently.

    However, I confused about exactly how much they’ve increased (in a relative sense). Maybe I misunderstand the data presented. The newspaper story says that King County foreclosures are up 49% since July last year. The plot here on SB shows a staggering 600% increase in King/Snoho. foreclosures since October last year.
    It seems possible, but unlikely, that both these facts are true. Tim, can you shed any light on the differences between the figures?

  2. 2
    The Tim says:

    Unfortunately, I cannot. The graph I presented comes from data at Bubble Markets Inventory Tracking, which began tracking foreclosures on Foreclosure.com in October. It could be that there was a drop in foreclosures from July to October ’06, or it could be that there’s something a little screwy about the older Foreclosure.com figures. I don’t know.

    Hopefully we’ll have a more complete picture in a few months when we get the October data from the papers and from Foreclosure.com and can directly compare YOY. The June to July ’07 data does match up pretty well though, with the chart I presented showing a 19.4% increase over that period.

  3. 3
    redmondjp says:

    You’re slipping, Tim — you forgot your ‘sarcasm ahead’ warning! ;

  4. 4
    softwarengineer says:

    AND THE BEAT GOES ON, TO QUOTE SONNY AND CHER

    But these are just a minor anomaly, a blip on the radar screen, an inconvenient truth and pie in the face for those that called us “Seattle Bubble bloggers” the buffoons a few months ago.

  5. 5
    Chris says:

    Frankly, I’m getting a little worried here about our immunity a downturn.
    Is there some sort of local pink pony breeding program we can start?

  6. 6
    Greg Kirkos says:

    Apparently all these forclosures are not adding to inventory. Do foreclosed properties only go to auction and thus don’t show up on your inventory tracker?

  7. 7
    Marc says:

    I’m as big a believer as the next guy that Seattle prices are too high, but I can’t helt but wonder if 2007 to 2006 year-over-year percentage changes in the foreclosure rate are very relevant if 2006 was itself a historically low year for the total number of foreclosures. This argument sounds a lot like the myriad of pundits who are wrything in misery over the thought of 30-year fixed rates breaking 7%. Oh, how quickly we forget the times during the 70’s and 80’s when a rate as low as 7.5% was a pipe dream.

    I would posit that the Seattle housing market will adjust just fine to an increased number of foreclosures if the foreclosure rate remains reasonably near or below its historic average over the past, say, 10 to 25 years. And I think the probability of the foreclosure rate doing just that is fairly high.

    I can’t wait to hear from the doomsayers who expect every loan on every other house in Seattle to pop.

  8. 8
    WestSideBilly says:

    JP:

    The reason the chart is so skewed is because it’s a cumulative number. From my understanding of this data, a property is considered foreclosed (first column) from the time the bank declares the owner in violation of his mortgage (this is actually the second column of the BubbleMarket data – pre-foreclosure notices) until the bank can find a buyer. In 2006, investors and sub-prime loans were still abundant so most foreclosed properties were quickly snagged up. With the subprime crunch and ludicrous appreciation finally catching up to Seattle metro, more and more of those foreclosed houses are sitting with no buyer. A property in the second column will show up in the first column after a few months if it is not bought.

    Dataset:
    Date: foreclosed properties/pre-foreclosures (% ratio)
    10/31/06: 195/2,165 (9.0%)
    11/30/06: 126/2,376 (5.3%)
    12/30/06: 131/1,500 (8.7%)
    01/30/07: 146/1,548 (9.4%)
    02/27/07: 124/1,503 (8.3%)
    03/30/07: 251/1,466 (17.1%)
    04/30/07: 511/1,566 (32.6%)
    05/30/07: 750/1,742 (43.1%)
    06/30/07: 1,134/1,589 (71.4%)
    07/30/07: 1,354/1,368 (99.0%)

  9. 9
    Rob Dawg says:

    The foreclosure reporting issue has been discussed elsewhere many times. Some sources sum all activity; pre, NOD, FC, REO. Others cull same property events such that only one event is reported for a house that goes pre and then corrects and only one report for a house that goes all the way to REO.

    Personally the former has more value but I can accept both sides. One thing for sure; you are gonna need a bigger graph. Oh, and BTW, the graphs look scary because FCs were so unnaturally low not because current defaults are actually historically high. They aren’t.

  10. 10
    patient says:

    if you foreclose it is beacuse you can’t sell the home to cover your mortage. Foreclosures are almost extinct during apprecition periods. Now, if Seattle is still appreciating how come we have an uptick in foreclosures? I would call the situation pretty alarming if even the little hint of recent possible depreciation can correlate to increased foreclosures. What will happen if/when we see significant value depreciation?

  11. 11
    deejayoh says:

    I’m not sure how to interpret that foreclosure.com data. It shows ~1,400 homes in foreclosure in SnoKing right now. That’s against a base of about 20k listings. If that’s true, then foreclosures are 7% of listings. That seems pretty significant. Is it possible that it is true?

    Seems like you can triangulate back to them being reasonable. Most of the other numbers you see are represented as a % of mortgages. There are ~650k “owner occupied homes” in SnoKing (200 census). If you apply the 30% are fully paid off rule-of-thumb, then 1.4/(70%*650) would mean they are saying that 0.3% of mortgages are in foreclosure – which I think is very low vs. national figures.

    Back of the envelope view, but I think it passes the smell test.

  12. 12
    rose-colored-coolaid says:

    Marc,

    It’s myopic to state that nothing is alarming about rates moving outside of recent norms. You are right that 7% rates seem low compared to 10%, but the markets aren’t priced assuming 10% or even 7%. They are priced to assume 5%. In the short to moderate term, such rate increases (especially if accompanied by a psychology that rates would never get this low again) would mean any item bought on credit is now overpriced.

  13. 13
    Garth says:

    I think the tighting lending standards have more to do with an increase than anything.

    People who were refinancing their way out of trouble with equity don’t have that option now.

  14. 14
    patient says:

    Garth, that will definately add gasoline to the fire but the tigthening didn’t really happen until August which is not part of the data in the post.

  15. 15
    mike2 says:

    In a market that is experiencing 9% YOY appreciation, the foreclosure rate should NOT be rising, since anyone that bought 12+ months ago has enough equity to at least break even on their purchase after sales costs and taxes.

    Either the market isn’t seeing 9% appreciation, or it’s becoming stratified to the point that the median appreciation is not representative of the whole.

    I’d have to agree that the median appreciation is not representative if so many more people are finding themselves unable to sell before foreclosure.

  16. 16
    softwarengineer says:

    MIKE2, YOU’RE FORGETTING A PLETHORA OF CLOSING COSTS

    Like real estate fees.
    Escrow fees
    Startup Costs (i.e., fences, yards, broke stuff)
    Moving Costs
    Etc, etc, etc…..

    I’ve heard, if you don’t plan on staying in a house for 5 years, don’t sell, rent. It costs too much to buy if you don’t own it for at least 5 years. I’d say more like 10-15 years the way the bubble climate recently looks in Seattle….

  17. 17
    patient says:

    softwarengineer, I guess those things can make any profit vaporize but it should not lead to foreclosure since those costs are outside the house value and mortgage. I.e the house should still pay for the mortgage if you can sell it for more than what you paid.

  18. 18
    patient says:

    Correction, some of those costs are eating on the house value as the 6% real estate agent fee. I don’t think these costs would mean foreclosure though if you could sell your home for more than you paid within the required timeframe.

  19. 19
    TJ_98370 says:

    Off topic –

    Whidbey Island and Bellingham mentioned in Ben Jones HBB today.

  20. 20
    TJ_98370 says:

    Off topic –

    Whidbey Island and Bellingham are mentioned in Ben Jones HBB today.

    How Speculators Are Losing Their Shirts

  21. 21
    rose-colored-coolaid says:

    [troll]
    Tim, I really don’t see how you can suggest that a linear increase in foreclosures starting in February and continuing through August with nearly no deviation from its linear increase is a trend! Foreclosures ALWAYS peak on August 22nd; the number will return below 20 houses by the start of September.
    [/troll]

    Hey, that is kind of fun actually.

  22. 22
    tranches of love says:

    If you want to get a good list of foreclosures every week in King & Snohomish counties go to…

    http://www.joshuakoffler.com/

    Also when you go there note how many of these foreclosures are from loans written in the last 3 years.

  23. 23
    Garth says:

    patient,

    Both HELOC’s and Piggyback loans over 80% were tightening long before August and the no doc versions were pretty much gone by the end of last year.

    From the standpoint of someone trying to avoid forclosure the loan types that make it easiest to get some breathing room were gone before August.

    The WSJ today said prime jumbos are back at 7.2%. The sales and loan data from the time period where you could not get a prime jumbo loan with a good rate is going to skew data for months.

  24. 24
    northseattlerenter says:

    OT: Is WaMu the next Countrywide?

    http://www.thestreet.com/s/is-wamu-the-next-countrywide/newsanalysis/ratings/10375529.html

    If WaMu goes south, how many local layoffs will we see? How many of those people have mortgages?

  25. 25
    Garth says:

    Looking at the chart in that article, this story today makes more sense:

    http://www.forbes.com/feeds/ap/2007/08/22/ap4045994.html

  26. 26
    AndyMiami says:

    quickly reviewing while making dinner…it’s about the rate of month to month growth for foreclosures, and it appears that Seattle is growing at a rapid rate, more than most metropolitan centers. Of course, being late on the curve, Seattle started with below normal foreclosure rates..

    I recently read that WAMU is in the top four banks that hold ARM re-setting from now through next year…

    Bank of America putting $2 Billion in PREFERRED STOCK, yielding 7.5% convertible at $18/share to common…very desperate move on the part of Anthony M, who will be on CNBC at 11am EST…

    Next, Wells Fargo….they are the reason for last Friday’s FED MORAL HAZARD bailout…

    Cheers

  27. 27
    patient says:

    Garth, unfortunately I think it is the changes in August that will be the gasoline on the foreclosure fire. The change since August where you need to qualify for the fully indexed rate on I/Os can be very serious at re-financing of current I/Os for overextended borrowers.

  28. 28
    JohnnyBigSpenda says:

    if the reason that someone is getting foreclosed on is because the bank set them up with a loan that is resetting to ‘unaffordable’ levels AND if the banks/ lenders are in trouble because people can’t afford their homes after the loans reset.(and now they are walking away from their mortgages).. why wouldn’t the banks just re-negotiate all those resettable loans? Even if they only renegotiated with ‘qualified’ home owners… that’s GOT to relieve a fair bit of pressure on both the banks and the home owners? Correct? Also, this might slow down some of the self fulfilling prophecy of spiraling prices as more and more people default and get foreclosed on? Don’t MOST people actually WANT to keep their home? If they can afford the teaser rate, let’em have it… its better than gettting paid back .70 on the dollar for a foreclosed house.

  29. 29
    Garth says:

    In the cases where you are facing foreclosure, you have a loan that resets because you are a risky, overextended borrower.

    There are emotions involved for homeowners, but for the banks it is all based on maximizing asset recovery.

    People at risk of foreclosure without substantial equity have few options currently and a much higher ratio are going to go from pre foreclosure to sold off.

    patient, I completely agree that anybody that made decisions that require appreciation is pretty much screwed. Many of these people have been skating by refinancing and will now lose their house. The question is how big a part of the market here are these people.

  30. 30
    patient says:

    Garth, yes, that is the question and my point is that if we see an increase at this stage, one we probably already are in a slight depreciating market in some areas and two if a slight depriciation in a few areas correlates to a significant increase in foreclosures it’s not far fetched to guess that the part of the market in trouble is significant.

  31. 31
    stephen says:

    “If they can afford the teaser rate, let’em have it… its better than gettting paid back .70 on the dollar for a foreclosed house.”

    Because the teaser rate will NEVER pay back the loan. An example would be $1300 on a option ARM 430k loan. It would take closer to 3 grand to do that loan on a 30 year fixed at the best rates. The kicker is that folks were qualified on the $1300. That means their entire take home is not too far north of the real payment.

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