Tucson Foreclosures and The Subprime Buyers
May 15, 2007
Post Tags: flotsam , subprime-borrowers , subprime-buyers , Tucson-Foreclosures
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Home foreclosures up 51 percent here
Foreclosures in the Tucson Real Estate Market are now beginning to have an impact on the number of homes on the market. However, it is not as big an impact on Tucson as a whole as the paper would lead us to believe. There is a lot hidden in the numbers and the way they are reported.
I’m reminded of a story that appeared in a Russian newspaper after a track event held between the United States and Russia. Only the two countries participated in the meet. The headlines went like this: “Russians finished Second, Americans finished Next To Last” Who won the meet?
On May 1, 2007 an article on 51% increase in foreclosures appeared in the “Tucson Citizen“. Sounds pretty bad. Looking at the article you would think Tucson will shortly be awash in foreclosed home with this huge increase. Let’s look at the numbers.
In the sidebar of the article we find these statistics:
First-quarter foreclosure filings since 2005
2005 2006 2007 % chng. 2005-07
- Pima County 943 1,199 1,427 51%
- Maricopa County 3,768 3,946 7,852 108%
- Pinal County 289 360 961 233%
- Arizona 5,896 6,232 11,757 99%
- United States 209,977 323,101 437,497 108%
Please note that of all the location given Pima County has the lowest numbers and the next lowest number is 48% higher which is for the entire state of Arizona.
We have the data provided but not the numbers so I did the calculations for this next section:
2006 2007 % chng. 2006-07
- Pima County 1,199 1,427 19%
- Maricopa County 3,946 7,852 98%
- Pinal County 360 961 166%
- Arizona 6,232 11,757 88%
- United States 323,101 437,497 35%
The 51% using a two year period of time is more dramatic. A 19% increase over last year is the lowest percentage increase in Arizona.
Please look at these figures again.
- Pima 19%
- Maricopa 98% 5 times higher
- Pinal 166% 8.7 times higher
- Arizona 88% 4.6 times higher
This indicates that of all the major counties reported in Arizona Pima County had the lowest percentage increase in first quarter foreclosures of the entire state. Meaning, Maricopa and Pinal county have significantly higher foreclosure rates effecting the real estate markets in those counties to a higher degree than the foreclosure rates in Pima County.
This isn’t anything to cheer about. However, we have to look at these number in the context of Arizona Real Estate and in that context we are in much better shape than the rest of the state.
Tucson Foreclosure Hotspots 
The Map of foreclosure hotspots in Tucson shows where the highest number of foreclosures are occurring. Look at the map and you will see it isn’t completely covering the Pima County area. The majority of foreclosures are in pockets as the article said primarily centered around some of the poorest neighborhoods in the area. It seem natural that is where the sub-prime borrows would be. It is the poorest among us that are the ones paying the high interest rates to Payday Loan companies. These are the same unfortunate people that in order to purchase a home in the first place had to go to sub-prime lenders to borrow the money to purchase a home.
The impact on the market
- Increase in inventory in some areas
- fixer upper for primary residence or rental
- Devaluation of homes
- Affordable housing in poorer areas of Tucson
Flotsam in the Tucson Housing Market
Flotsam is the part of the wreckage of a ship and its cargo found floating on the water.
The foreclosures on homes purchased by Sub-prime buyers is a financial ship wreck for these buyers, that have been brought to foreclosure because they can not make the mortgage payments once the rate increases take effect.
They didn’t have the borrowing power to get a conventional loan, and in most cases they should never have been granted a loan which was destined to lead them down the road to foreclosure. They were taken advantage of by sub-prime lenders that knew when the rates would increase they could never make the payments.
Everyday we hear of the fraudulent practices of some sub-prime lenders perpetrated against borrows.
Even worse for the sub-prime borrower that goes into foreclosure, and their home sold. They could be subject to a large tax bill in the near future.
The Internal Revenue Service considers any amount that is not recovered by the lender as income and will be taxable.
For a quick example:
- Amount Borrowed $200,000
- Amount Recovered after sale of foreclosed home $150,000
- Amount Considered income to the borrower by the IRS $50,000
Taxes, penalties, interest are due on that amount.
Foreclosure Summary in Tucson
Here is some good news that was on National Public Radio today and the transcript can be read at NPR Marketplace “There’s a good side to subprime lending”
Here is a direct quote from that commentary by Kai Ryssdal
“So far, fewer than 15 percent of subprime borrowers have been late with their mortgage payments.
And even if 20 percent of subprime mortgages end up in foreclosure, it still leaves the other 80 percent of subprime borrowers cutting their own lawns and, most important, creating wealth in the form of home equity.
Yes, let’s clean up the subprime market and help salvage the homes of people suckered by aggressive lending. But let’s not forget the subprime market serves poor minorities — and that’s a good thing.”
There will be foreclosures in the coming months, how many? no one seems to know. Over six months ago I tried to get data on how many sub-prime loans were made since 2002 and when they were coming due for increase. None of the mortgage lenders I contacted had access to any information. They weren’t sub-prime lenders.
But, it looks like the impact here will be much less than in the other counties listed above. The impact of foreclosures on those real estate markets should be watched as indicators of what could transpire in Tucson on a smaller scale.
For further reading “The Tucson Housing Market 05 06 A Runaway Auction“
May 16th, 2007 at 9:40 am
The point is that they are up. The toxic mortgages sold to the class of 2005 and 2006 haven’t reset yet. That train wreck will unfold over the next two years.
Look at this graph:
http://bp2.blogger.com/_OjftCEBUcYQ/Rg_pWDJZi-I/AAAAAAAAAYc/ZUV-Ea1drv8/s1600-h/credit_suisse_reset_sced_edit.PNG
What does that data suggest to you? I know what it means, and as much as I would like to look at it with rose glasses… I can’t. It’s not different here… it never is. We are a BIG city now Dave… we are not immune to BIG city problems that can be traced through national trends. Heck, Phoenix is only an hour point five away… the poster child of the bubble they are. 55K+ homes on the market and rising.
How long can people hold on before they absolutely have to ditch the home? How will they ditch the home if no one is buying? Foreclose or Drastically reduce the price? Ben Bernake has the answer to those questions and he is pinned on the ropes between two Mayweather’s.
He can raise the interest rate and attempt to head off the supply shock, or he can lower the interest rate to help create a demand pull. In either scenario he has to take the Macro economy into account; the dollar, bonds, inflation and the myriad of other economic factors.
An interest rate increase to stave off inflation would sink the housing market. The only thing going for the Housing market right now is a large inventory to choose from and a low interest rate. An interest rate decrease would send inflation to the moon. The dollar is weak right now and a further devaluation will turn Walmart into a high end retailer.
What has the FED done this year? Nothing, which is bad for several reasons. One, they can’t make a move because of the negative implications in either direction due to; cause and effect. If they act one way it will have a negative effect in the other direction. Two, a neutral move suggests that the FED isn’t ready to sink the ship in either direction. They want one end to sink first, so they can counter the sinking portion with ballast to keep the whole economy afloat a while longer.
The FED has been warning of increased inflation for the last two quarters. Retail sales just took a massive hit to earnings and the price of gas is high again. We’ll see which direction the FED goes, but the ship is sinking and they have have to make a move sooner or later.