HOUSING MARKET AND THE REAL ESTATE BUBBLE

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The Government and the Foreclosure Crisis
Michael Barone
The American Enterprise Blog
October 26, 2009

The latest figures for foreclosures for the third quarter of the year and for September are in on the RealtyTrac website.
Foreclosures were up 5 percent in the third quarter, and the figures indicate that the proportion of foreclosures resulting from recessionary stress is up and the proportion caused by the government’s inflating of the housing bubble and encouragement of subprime and Alt-A mortgages in fast-growing parts of the country is down.

Specifically, in the third quarter 54 percent of the foreclosures were in the four “sand states,” California, Nevada, Arizona, and Florida, and 4 percent in Michigan (which, with its 15 percent–plus unemployment rate, is a good proxy for recessionary distress). The corresponding figures for September are 48 percent and 5 percent.

The rates of foreclosure are still far higher in the sand states than elsewhere, however. In the third quarter the percentage of houses in foreclosure were highest in Nevada (4.3 percent), California (1.9 percent), Arizona (1.9 percent), and Florida (1.8 percent). The only other states above the national average of 0.7 percent were Utah (1.0 percent), Idaho (1.0 percent), Georgia (0.8 percent), Michigan (0.8 percent), and Colorado (0.8 percent). Note that all of these except Michigan have been high-growth states, thus vulnerable to the same government-induced boom-and-bust experience so visible in the sand states.

Here’s an interactive blog post from the Associated Press that shows you where the foreclosures have been concentrated between January 2004 and September 2009. It highlights the states where the foreclosure rate hit 0.4 percent a month, a troublingly high percentage. (The percentages in the preceding paragraph are for a three-month period and so not commensurate.) No state hit that troubled percentage until March 2007, when Nevada did. In August 2007 California was in the trouble zone, then snapped out of it only to reappear in December 2007, after which it has remained in that territory. In April 2008 Florida and Arizona appeared in the troubled zone and have stayed there ever since. A few other states have popped into the troubled zone more recently, Virginia for one month in May 2009, Utah for one month in July 2009, Michigan for one month in August 2009, and Idaho in August and September 2009.

In the absence of those government policies that encouraged and subsidized subpar mortgage lending, there would be many, many fewer foreclosures nationally. And of course in the absence of those policies, the banks and other financial institutions would not have filled their portfolios with mortgage-backed securities and other financial assets that turned out to be worth far, far less than the ratings agencies and others projected. And what were those government policies? A good place to start would be the work of my American Enterprise Institute colleague Peter Wallison, who has been warning us about these policies for years.

http://blog.american.com/?p=6521