(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).
BOSTON, Aug. 12, 2013 --- An improving real estate market and new state regulations continue to slow foreclosure activities in Massachusetts but there are signs that lenders will pick up the pace during the second half of the year and the increase could beparticularly felt in the state's so-called gateway cities.
In its most recent analysis of foreclosure activity, Foreclosure Monitor found that from March through June, fewer than 300 foreclosure petitions were filed per month, down from an average of just less than 1,700 petitions during the same period in 2012.
The slowdown in the second quarter is similar to what was reported in the first quarter, when foreclosure petitions were down 52 percent from the same quarter the year before. The slowdown has been attributed to an improving real estate market and processing slowdowns due to a new 2012 state law that requires lenders to notify borrowers of their right to pursue loan modifications before foreclosing.
With regulations for the new state law finalized and released on June 26, Foreclosure Monitor expects that lenders will begin to increase foreclosure activity. In fact, data examined by Foreclosure Monitor just before publication indicates that Citibank and JP Morgan Chase have recently increased foreclosure activities.
If foreclosure data from the first six months of the year are any indication, Foreclosure Monitor expects that increased foreclosure processing activity will be felt more in gateway cities, which have not experienced recovery at the same sustained pace as the rest of the state. Foreclosure Monitor's analysis of property distress data shows that distress in one- to three-unit properties has declined 26 percent in the state's gateway cities in the past year, as opposed to 30 percent in the rest of the state.
Foreclosure Monitor's regular comparison of distress rates in urban vs. suburban/rural/high-income communities also shows that gateway cities are beginning to lag behind the rest of the state in terms of recovery. Foreclosure Monitor reported in Oct. 2010 that for the first time since the foreclosure crisis began, the state's suburban/rural/high-income communities had a higher percentage of the state's distressed units than Boston and the state's gateway cities (50.6 to 49.4 percent). This was seen as the point in the crisis when the foreclosure problem had evolved away from being primarily an urban problem driven by sub-prime loans to a statewide problem driven by a weakening economy.
The gap widened to 53.8-46.2 by July 2012 and remained stable for the next nine months. But recently, the gap has narrowed to 53.3-46.7. While this is a relatively small change, Foreclosure Monitor expects that distress in urban areas will continue to rise relative to the rest of the state, as the suburbs are recovering faster.
Gateway cities continue to be hit hard
Turning to the Foreclosure Monitor's quarterly assessment of foreclosure distress, the state's 24 so-called gateway communities continue to suffer an inordinate amount of distress. While these 24 communities represent just 25 percent of the state's housing units, they account for 40 percent of the state's foreclosure distress and have an overall distress rate that is 57 percent higher than the state's.
The good news is that distress declined in all 24 communities from July 2012 to July 2013, with the largest declines in Barnstable and Revere (-41 percent), and the smallest decline in Fitchburg (eight percent).
30 most distressed Gateway tracts confined to 7 cities
Since the number of housing units in each gateway city can vary dramatically, it's useful to analyze distress by census tracts, which generally range from 1,000 to 3,000 units. This helps provide state and local leaders with a better idea of exactly where property distress and neighborhood destabilization may be occurring and where public resources may have the most impact.
According to our analysis, as of July 1, 2013 the 30 most distressed census tracts in the state's gateway cities were confined to just seven cities. Twenty-five of these tracts were among the state's 30 most distressed census tracts, down from 28 in April 2013 (see Table 3).
Among the facts this table shows are:
Brockton had the highest number of census tracts (12), up from 11 tracts the year before.
The biggest increase in distress was Fall River's tract 6418, where distress increased 25 percent since a year ago. A year ago, no Fall River tracts appeared in the top 30 list.
The biggest decline in distress was in Springfield's tract 8022 (-40.8 percent).
Boston distress rate lower than state as whole
The overall distress rate in Boston as of July 1, 2013 was 5.2 units per 1,000 housing units, below the statewide rate of 7.1 per 1,000 units. Since April 1, 2013, Boston's distress rate has declined 22.6 percent. Compared to a year ago, Boston's distress rate has declined 34.9 percent.
It is important to reiterate that some of this decline could be related to the recent slow-down by lenders in starting new foreclosures. In addition, despite this decline, there are neighborhoods to watch, as Boston continues to have the largest number of units in foreclosure distress (1,413) than any other Massachusetts city.
Table 3 below provides detailed information on the 30 most distressed tracts in Boston. By neighborhood, the breakdown of these tracts was: 14 tracts in Dorchester, five tracts each in Hyde Park and Roxbury, four tracts in Mattapan, and two tracts in East Boston.
Distress in suburban/rural/higher-income urban communities
While the Foreclosure Monitor focuses on Massachusetts' most distressed urban neighborhoods, it is also important to note areas of distress elsewhere in the state, both in less urban areas (municipalities with a population of less than 35,000), and among Massachusetts' larger urban municipalities with higher median household incomes such as Arlington, Newton, Weymouth, Cambridge and Somerville.
Of these suburban/rural/higher-income urban municipalities, the 30 most distressed are presented in Table 4. Of these top 30 most distressed, only four had an increase in distress from July 1, 2012 to July 1, 2013.
Other trends in real estate, foreclosures
The following links are provided for readers to directly access regular sources of foreclosure and real estate trends:
Foreclosure data: The Warren Group most recently released foreclosure data for the month of June 2013. The number of foreclosure deeds filed in June 2013 (329) was 56 percent lower than the 754 filed in June 2012. This year-over-year decline was the 13th straight month of year-over-year declines, but it was a 31 percent increase over the previous month (251 foreclosure deeds). Foreclosure petitions (the first step in the legal process to complete a foreclosure) also declined from June 2012 to June 2013 (-84 percent). Nationally, foreclosure activity (as reported by RealtyTrac) declined 35 percent from June 2012 to June 2013. As in Massachusetts, foreclosure activity is at levels not seen since 2006, but the drop has not been as precipitous as in Massachusetts, in part because other states have not seen an artificial decline in foreclosure activity related to the implementation of new laws.
Real estate sales data: The Warren Group and the Massachusetts Association of Realtors (MAR) recently released their monthly real estate sales figures. The two use somewhat different data sets for analysis. The Warren Group reported a one percent increase in the number of single family sales from June 2012 to June 2013, and an 8.8 percent increase in median single family sales prices, while the Mass. Association of Realtors reported a 1.6 percent increase in single family sales and a 6.9 percent increase in median single family sales prices. Both report that inventory remains limited, and anecdotal stories abound of bidding wars for properties in Massachusetts' most desired neighborhoods. With prices on the increase, more homeowners who have been on the fence about selling their homes are likely to make the decision to sell, and the number of homeowners with "underwater" mortgages (negative equity) should continue to decline, allowing more of these homeowners to sell, as well. As of Q1 2013, CoreLogic reports that 15 percent of Massachusetts homeowners have negative equity in their homes, compared to 16.8 percent in Q1 2012.
Home prices: The S&P Case-Schiller Price Index recently released its May 2013 data. Prices are rising substantially, with a 12.2 percent increase from May 2012 to May 2013, for its 20-city composite. Prices increased in all 20 cities, and prices increased 7.5 percent in Greater Boston, placing Boston 16th of the 20 cities measured. New York (3.3 percent), Cleveland (3.4 percent), Washington (6.5 percent), and Charlotte (7.0 percent) had smaller price increases. The biggest annual price increases were in San Francisco (24.5 percent) and Las Vegas (23.3 percent). Rapid price increases are crucial to the recovery of the Las Vegas market to pre-recessionary levels, but San Francisco saw a smaller decline in prices during the recession, and a rapid increase in prices there could signal a new, local real estate bubble forming. Boston prices remain 11.2 percent below the 2005 peak, but have also recovered 11 percent from the depths of the recession.
(Tim Davis is an independent research consultant commissioned by MHP to do foreclosure analysis and the Foreclosure Monitor).