From the way Barack Obama talks, you would think foreclosures and declining housing values are taking place all over the country. That’s not entirely true. It turns out that the majority of all home foreclosures are taking place in just five states: California, Nevada, Arizona, Florida, and Michigan. So it’s not quite the national problem we were told it was. The Cato Institute’s Alan Reynolds offers some comparative analysis at the New York Post:
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.
Mr. Reynolds’ analysis shows that the declining home values are concentrated in those same states, minus Michigan. Another report confirms Reynold’s findings and says that California, Nevada, Arizona, and Florida account for 87% of home value losses. Interestingly, Reynolds also notes that those same four states are experiencing the largest increase in existing home sales, bringing him to the conclusion that dropping home prices are not the problem but are actually the solution. Why? Because it shows that the free market is working. People are buying the homes that have fallen the most in price, reducing the inventory of homes for sale in those states. This is a good thing.
However, Obama’s mortgage relief program could make the housing situation worse than if we just let the market handle it. How? My evidence is purely anecdotal, but I wouldn’t be surprised if it’s happening in other places. My husband is a bankruptcy attorney, and he has received phone calls from people who have told him that mortgage brokers advised them to stop paying their mortgages if they can’t refinance their homes because their home values have dropped below their mortgages values. This, the mortgage brokers have told these home owners, would allow them to qualify for Obama’s mortgage relief program. These are home owners who are currently paying their mortgages. My husband is just one attorney in one city, so I wonder if mortgage brokers in other cities and states are advising home owners to do the same thing. If this is happening in other places, the number of people in default could increase simply because Obama’s program encourages those who are struggling but are paying their mortgages each month to stop paying. Of course, my husband has advised those home owners who have called him to continue paying their mortgages because if they stopped even for a short time they would be in default and the bank would begin foreclosure proceedings. Even if they did qualify for assistance, they could lose their homes before they could get any help.
Obama’s mortgage relief program is an example of Ronald Reagan’s brilliant statement: “Government is not a solution to our problem. Government is the problem.”