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Foreclosures Threaten Real Estate Recovery
By Greg L | 5 February 2007 | Local Economy, Illegal Aliens | 13 Comments
The hoped-for rebound in local housing prices in Prince William County may have to wait a little bit.
This weekend a story appeared on Bloomberg which talked about a jump in subprime mortgage defaults that was observed in November, 2006 to the highest levels seen since 1999. With about 20% of all loans in the past years falling into the subprime category — which often involved exotic features such as option ARMs and interest-only, about 10% of those loans are now in foreclosure, which is double the default rate seen in May of 2005. The Center For Responsible Lending projected last fall that this rate would climb to over 20% in Virginia, which leaves a fair amount of pain ahead for homeowners and localities that largely depend on rising or flat real estate assessments in order to finance budget growth.
Looking at the current data in Northern Virginia, the pain is not equally distributed, and the recovery seems to be lagging in Loudoun and Prince William Counties, as well as the cities of Manassas and Manassas Park. Based on MRIS residential inventory and 2005 Census Bureau data I see that the ratio of available houses to the total number of existing residential units (sort of a residential vacancy rate analogue) in the outer DC suburbs is about twice has high as inner localities such as Fairfax and Arlington.
| Available vs. Total Residential Units, 1/31/07 | |||
| Locality | Total Units | Available | Ratio |
|---|---|---|---|
| Alexandria City | 64,251 | 939 | 1.46% |
| Arlington County | 86,352 | 992 | 1.07% |
| Fairfax City | 8,173 | 135 | 1.65% |
| Fairfax County | 386,856 | 6,257 | 1.62% |
| Falls Church City | 4,635 | 62 | 1.34% |
| Loudoun County | 93,374 | 3,178 | 3.40% |
| Manassas City | 12,114 | 380 | 3.14% |
| Manassas Park City | 3,361 | 137 | 4.08% |
| Prince William County | 125,667 | 4,100 | 3.26% |
While the number of residential units for sale has been decreasing, the rate of change over the past three months is about 10% faster in Fairfax and Arlington counties than it is in Prince William and Loudoun. To many, it appears that a “soft landing” scenario in the region may happen sometime in the spring/summer timeframe, and the localities closer to Washington, DC will lead the trend. But the dark cloud within this silver lining may well be subprime mortgage default rate. Until mortgage defaults run their course, there’s an overhead residential supply capacity just waiting to hit the residential market and put at least a temporary halt to this slow market improvement.
The outer localities have been a proportionately larger player in the subprime mortgage game, as housing is more affordable and the percentage of ethnic minorities, who participate in the subprime mortgage market dramatically higher rates, have established themselves. According to the CRL report, 52% of African-Americans and 40% of Latinos obtain subprime mortgages, as compared to 19% of White, Non-latino borrowers. With a projected subprime default rate of 22.8% in Virginia for loans originated in 2006, that’s going to mean a lot of houses being sold at foreclosure down the road, and foreclosures not only add to housing supply, but depress sale prices for homes on the same block by 1-2% each time a foreclosure happens. This could tear into latino areas like a chainsaw, as foreclosures depress prices and raise availability, putting ever greater pressure on neighboring homeowners who in many cases are struggling with a downturn in the construction industry that is squeezing incomes. Communities in Point of Woods, Georgetown South, and the Route 1 Corridor could suffer terribly.
If these expected foreclosures happen over time, real estate assessment recovery in the outer localities will trail the rebound in Fairfax and Arlington but still develop in time for the 2008 budget cycle. If income and interest payment pressures accelerate the foreclosure rate in outer localities, a recovery will potentially reverse, and that reverse would be heavily concentrated in minority communities, presenting the possibility for other significant challenges for localities in terms of public safety, demand for government services, and dislocations in public schools. Watching changes in the foreclosure rate is going to be critical for budget planners as well as real estate professionals, as it could be the linchpin for future economic performance in Loudoun, Prince William, Manassas and Manassas Park.
The opinions expressed here are solely the views of the author, and not representative of the position of any organization, political party, doughnut shop, knitting guild, or waste recycling facility, but may be correctly attributed to the Vast Right-Wing Conspiracy. If anything in the above article has offended you, please click here to receive an immediate apology.
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13 Comments
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Maybe the banks will quit lending to people who can’t really afford the houses they are buying.
Many have. Wachovia, which is one of the bigger players, as exited the subprime market:
http://www.inman.com/inmanstories.aspx?ID=61752
Well I am hoping to get out of this town this spring/summer so hopefully I can sell it before the market tanks completely. I can’t say that I didn’t see this coming when the banks will basically give a loan to a housefly these days. Loans were given to anyone regardless of immigration status. I was actually expecting this downturn about 6 months ago and am surprised that it hasn’t hit yet. I still see new home developments being built on my way to work and I think to myself who is going to buy those houses?? This entire situation is almost a mirror image of what went on in the mid 80’s with the glut of houses and the banks lending to anyone with a pulse. The entire park is pretty much latino these days anyway and most of them are in construction in one shape or another so if they have no work and can’t pay the bills;1+1=2. This is all thanks to your local government and the feds not cracking down on illegal immigration so when/if there is no local budget left to pay for anything then they will have nobody to blame but themselves.
There is one silver lining here and that is maybe all the illegals will pack up and go home if they don’t have any work and can’t pay the bills….maybe.
They already have started to pack up and go home.
I can actually find a place to park in Belmont Station on a Sunday night now!
Oh despite this, Manassas Park has seen fit to increase my assessment by $10,000 this year.
I now officially have an assesment on my house that is higher than I can sell it for.
Thanks, MP.
Don’t feel like you’re the only one. My new assessment was a good 5-10k higher than what I could sell for. This on top of an already absurd tax rate. If I lived in fairfax county then I would be paying about $1200 less for the same value of house that I am in now. How the park can be 35% higher than fairfax is beyond me??
Go look at the VML website. There is a good article on taxes there. Cities almost always have a higher tax rate than do counties.
…and it’s almost always because they (cities) provide trash service when counties do not.
Or at least that’s been the excuse MP has offered up every year for 5 years that I’ve lived here as to why their taxes are so high.
It’s to give benefits to illegals is why. That and the taj majal police station they are building. Those are the real answers they can’t/won’t tell you. I guarantee you that a huge chunk of that tax money is to educate illegal aliens’ children, offer ESOL programs, welfare, etc. Good luck getting the real numbers from them because they guard them like the state jewels. For $100 a month I will drive the single bag of trash I create a week to the dumpster myself! Perhaps I really have heard it all. I was going to pay the treasurer a little visit last october when I paid my personal property tax and demand he tell me what the money was being spent on and prove to me on paper the numbers, but I figured that it would just get my blood pressure high dealing with the lies and incompetence and decided against it since I am out of here soon anyway.
Just do us all a favor and don’t run for city council 2 months before you move…
I’m staying here, I can’t possibly move any closer to work without paying Fairfax prices for a house.
I think this whole issue is planned! Many of the properties were purchased by those who lived there until the were taken back for non-payment. When forclosed upon they are reclassified as “affordable housing” and again, guess who they are made available to.
I have had at least three on my Manassas City street go this way in the past year.
I suggest all make their concerns known and public by displaying a bumper sticker like:
Your Tax Money
Is Wasted on
Illegal Aliens
You can design and order stickers like that from MakeStickers.com and have them in the mail in about 2 days for about $5 ea.
Add to this spending on illegals that’s out of control. Why do schools need translators? Why do we continue to pander to the ESOL community? Show me where the law says we have to spend tax money on illegals at all; education, emergency health care, gang intervention, you name it. Manassas and Manassas Park will continue to have unsufferable high taxes and will continue to suffer from depressed real estate values until illegal immigration and over crowding are addressed.
Based on the posts above this may not happen in my lifetime; with foreclosures being labeled “affordable housing” for multiple families to buy and send their non english speaking kids to school, which in turn causes the tax rate to further increase on the lowered house value which continues to decrease and become less marketable as more and more multi-family residences of illegals are established. Advocator is right; your tax money is wasted on illegal aliens.
Most of us can’t afford the cost to move further in and can’t tolerate the commute to move further out. Thank God blogs like bvbl exist so that we can all vent and realize that we’re not the narrow minded biggots the left wing and media say we are.