Rising foreclosures pressure housing prices

updated 1:12 p.m. ET Feb. 12, 2008

WASHINGTON - A growing share of home sales are from foreclosures, especially in states hardest hit by the housing bust. In some parts of California lately, nearly 50 percent of home sales come from foreclosed houses.

The trend, which is putting additional downward pressure on home prices, is most notable there and in Nevada, Colorado, Tennessee and Michigan, but is also evident in Ohio, Georgia, Florida and Arizona, according to an Associated Press comparison of 2007 sales and foreclosure data. In Nevada, for example, 17.5 percent of home sales were from foreclosures, more than quadruple the number in 2006.

The growing proportion of foreclosure sales is both a symptom and cause of worsening conditions in the weakest housing markets, real estate experts say. Homeowners who aren’t on a deadline to sell are yanking their properties off the market, and this means the remaining inventory is increasingly held by banks eager to unload foreclosed properties at fire-sale prices rather than carry the costs on their books.

Property values and local tax revenues are suffering as a result, consumer advocates say, especially in neighborhoods with lots of minority residents for whom lending standards were weakest.

“There is a real complacency, or an under-appreciation of how bad this is,” said Ramsey Su, an investor and former real estate broker in San Diego who regularly combs through the local sales database to asses the impact of foreclosure sales.

Reacting to such concerns, the Bush Administration and lenders including Bank of America Corp. and Citigroup Inc. unveiled a plan Tuesday to give seriously delinquent borrowers a 30-day break from foreclosure while lenders try to work out a way to make the mortgage more affordable.

The AP’s foreclosure analysis compared the annual rate of existing home sales in the third quarter of 2007 — the most recent quarter available from the National Association of Realtors — with state-by-state foreclosure sales data provided by RealtyTrac Inc. of Irvine, Calif. The analysis found:

• In Colorado, foreclosure sales accounted for 15.6 percent of home sales in 2007, up from 10 percent in 2006.
• In California, the number jumped to 11.3 percent from 3.7 percent.
• In Tennessee, it rose to 10.6 percent from 5.2 percent, and in Michigan it climbed to 9.3 percent from 4.9 percent.
• Nationwide, foreclosure sales grew to 4.7 percent of existing home sales, up from 3.3 percent in 2006.

The analysis underscores that the housing bust is having the most severe impact in areas where lending standards were the loosest, or where the economy is especially weak. In 18 states — including places as diverse as Maine, New Mexico and Kansas — foreclosure sales made up less than 2 percent of total sales.

Lax lending standards, which were especially prevalent in formerly booming housing markets in California and Nevada, allowed borrowers to buy far more expensive houses than they could afford during the boom years, and now defaults are surging. Highly discounted foreclosure sales also can make it tougher for borrowers to refinance into more affordable loans if their property value falls, which could lead to more foreclosures and lengthen the housing crisis.

MORE FROM MORTGAGE MESS

Mortgage Mess Section Front

Hope Now helps fewer homeowners in May Wachovia quits offering risky mortgage loan States file lawsuits against Countrywide Foreclosure rescue stalls in Senate Foreclosure relief plan advances in Senate Real estate mess hurts those in field twice Mortgage fraud sweep marks a turning point Hundreds indicted in mortgage probe Lenders pledge speedy response on loan help Cities sue, invest to stop foreclosures Mortgage Mess Section Front   Add Mortgage Mess headlines to your news reader: