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1-6. Foreclosure Monitor: Distress hits tipping point; more in suburbs than urban areas

Foreclosure Monitor is an effort by MHP to help public officials determine how best to use their resources to help homeowners and neighborhoods hard-hit by foreclosure.

By Tim H. Davis

BOSTON, Nov. 9, 2010 ---The gradual movement of distressed properties away from urban areas has reached a tipping point as there are now more distressed units in the suburbs and rural communities.

In an examination of Warren Group data as of Oct. 1, 2010, Foreclosure Monitor found that distressed units in Boston and 24 Gateway municipalities account for 49 percent of the distressed units in Massachusetts, down from 59 percent as of Oct. 1, 2008 and from 54 percent as of Oct. 1, 2009.

Distressed properties are units where a foreclosure petition has been filed, an auction has been scheduled, or a property has been foreclosed and taken back by the bank (known as "REO" or "real estate owned"). Given the large number of multi-families in Massachusetts, it's important to measure the number of units, rather than the number of properties affected by foreclosure. Gateway municipalities are defined by the state asthose with a populations greater than 35,000, with median household income and educational attainment rates below state average.Twenty-fourmunicipalities are considered Gateway and these communities, along with Boston, were the first to be hit by foreclosures, due in part to sub-prime mortgages.

The gradual shift in distressed properties from urban to suburbs and rural communities is an indication of how unemployment and general economic distress has taken over from sub-prime as the key driver of distress. There is no better illustration of this than in Worcester County. In Oct. 2008, the Gateway municipalities of Fitchburg, Leominster, and Worcester accounted for 51 percent of the distressed units in Worcester County. By Oct. 2010, this percentage had declined to 43 percent. This shift can be seen in the following time-series of maps of Worcester County.

Among the trends shown in these maps are:

  • In Oct. 2008, the highest levels of foreclosure distress could be found in Worcester and along the Route 2 corridor towns and cities, from Fitchburg to Royalston.
  • By Oct. 2009, there was a general increase in distress in many Worcester County communities, with the notable exception of I-495 communities from Harvard to Westborough.
  • In Oct. 2010, the highest rates of distress could be found in the rural communities of Ashburnham, Winchendon, and New Braintree. Again, the I-495 communities remain relatively untouched by the foreclosure crisis.

For a larger view of these maps, click here, scroll to bottom and hit the enlarge button.

Community snapshot: Distressed properties down in Lawrence, Worcester
A look at distressed properties by community also illustrates this suburban/rural shift. While Brockton continues to have the highest rate of distress, Lawrence is down 29 percent and is now 11th, after being no lower than third in every previous Foreclosure Monitor. The level of distress also decreased in the cities of Chelsea, Fitchburg, Lynn, Revere, and Springfield.

Nine of the top 20 communities are located in Worcester County. While a small number of properties can account for large changes in these smaller communities, the pattern of continued distress across Worcester County is cause for concern. The bright spot in Worcester County is the City of Worcester itself, which dropped from 13th to 21st in the last year.

Tracking distress by zip code pinpoints urban trouble spots
The shift of distressed activity away from urban areas doesn't mean that the problem is ending in the state's cities. An analysis of Warren Group data by zip code through Oct. 1, 2010, found that 16 of the top 20 distressed zip codes are in dense, urban areas. Continuing a trend seen in July, Lawrence's 01841 has moved out of first position and is now ranked sixth. Eleven other zip codes in the top 20 also saw a year-over-year decline.

Census tract analysisnotes improvement in Springfield
While the number of housing units in a zip code can range from dozens to more than 20,000, the number of units in a census tract generally ranges from a 1,000 to 3,000, providing a smaller area for analysis.

At the census tract level, Boston tracts in Dorchester and Roxbury occupy five of the top 20 tracts. All five tracts had less distress than a year ago.While the results were mixed in Brockton, Lynn, and Worcester, all three Springfield census tracts in the top 20 experienced a decrease in the number of distressed units.

Uncertainty in the housing market to continue
Despite signs of softening in urban areas, unsettling signs in the economy indicate that the distressed property problem isn't going away anytime soon. Overall, the number of distressed units in Massachusetts increased 6 percent from 32,664 as of Oct. 1, 2009 to 34,632 as of Oct. 1, 2010. For every 1,000 units in Massachusetts, 13.7 were distressed as of Oct. 1, 2010.

While Massachusetts' unemployment rate has declined from a peak of 9.5 percent in Feb. 2010 to 8.4 percent in Sept. 2010 (Bureau of Labor Statistics), it is not clear that this is sufficient to mark a recovery for families facing foreclosure.

At the same time, the health of the home sales market is very difficult to assess, given the recent expiration of the homebuyer tax credit. While a short term sales slump was expected immediately following the expiration of the tax credit, this slump appears to be continuing and will slow the resale of foreclosed properties.

Most importantly, uncertainty has increased in the foreclosure process. Bank America and other lenders placed temporary stops on their foreclosure activity due to questionsabout accurate documentation. Thismay slow the foreclosure process and the re-sale of foreclosed properties. While this may benefit struggling homeowners, and improve some home sales prices, it also may have detrimental effects on the hardest hit communities, where existing foreclosed properties will remain unsold and vacant.

What does this mean for policy makers?
Given the spread of distress into suburbs coupled with continued foreclosure concentration in certain urban neighborhoods, policy makers need to continue to pursue multiple strategies that provide good mortgage products for new and existing homebuyers, while also working with municipalities, developers and lenders on strategies that target hard-hit zip codes and census tracts with programs and incentives that promote the revitalization of distressed properties and hard-hit neighborhoods.

For more information: Links to foreclosure and real estate trends
The following links are provided for readers to directly access regular sources of foreclosure and real estate trends, some of which are mentioned in the proceeding analysis:

  • Foreclosure data: The Warren Group released Sept. 2010 foreclosure deed and petition data for Massachusetts, showing a 27 percent increase in the number of foreclosure deeds over Sept.2009. Despite this year-over-year increase, deeds declined 26 percent from Aug. 2010. In promising news, there were 7 percent fewer foreclosure petitions filed in Sept. 2010 than in Sept. 2009. RealtyTracreported an increase in foreclosure deeds, to a record of 102,134 in September.
  • Real estate sales data: At the end of October, The Warren Group and the Massachusetts Association of Realtors (MAR)reported a 13 to 14 percent decline in single-family sales volumes and a very weak 0.3 to 1.7 percent increase in median sales prices over the same period. S&P/Case-Schiller Price Index shows that Boston continues to fare better than most other metros studied, with a 1.5 percent increase in home prices from Aug. 2009 to Aug. 2010.

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