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Sunday, August 19, 2007
Why Albuquerque and New Mexico are Dodging the Foreclosure Storm
By Richard Metcalf
Journal Staff Writer
New Mexico, with the Albuquerque metro area leading the way, is bucking the national trend toward increasing home foreclosures.
Substantially fewer New Mexico home buyers stopped making payments on their mortgages during the first half of this year compared to last year, according to a recent report.
While foreclosures were down 30 percent in New Mexico, they were up 58 percent nationwide in the first half of 2007. The national average was one out of 134 households.
During the first six months of this year, one out of every 395 households in New Mexico was at some stage in foreclosure, according to Irvine, Calif.-based RealtyTrac.
"Some of the larger, more populous states are driving the high national foreclosure rate," said Daren Blomquist of RealtyTrac.
"These are areas that experienced sharp increases in home prices over the past few years," he said. "Then (housing) demand turned off quickly, almost like a light switch."
New Mexico's foreclosure rate is substantially lower than that of Arizona (one of every 82 households), Colorado (one of every 60), Nevada (one of every 40) and California (one of every 69 households).
All three states have healthy economies with better job growth than New Mexico, but residential markets in their major cities have all seen median home values drop.
The high national foreclosure rate has been blamed on troubles in subprime mortgage lending. Once a small niche market, subprime lending became common during the housing boom that ended in 2006.
"Exotic loans are for people who have trouble buying homes with conventional loans," Blomquist said. "Lenders tend to get more creative."
Subprime loans typically involve adjustable-rate mortgages made to home buyers with questionable credit histories.
When the interest rates are adjusted upward at preset dates, the buyers sometimes find themselves unable to make the higher mortgage payments. Foreclosure can result.
In addition, the sheer volume of home buying during the boom would have led to more foreclosure activity, said Everett Dossey, branch manager of Town & Country Mortgage in Albuquerque.
"We were in an ultra low-interest environment, so nationally we did a lot more loans than ever before," he said.
But other market forces can influence foreclosure rates, too. For instance:
Home values have stalled, even declined, in growth states where markets overheated during the five-year housing boom. As a result, some buyers can't pay off their mortgages if they resell in today's slow residential market.
Take California's high foreclosure rate. It has been attributed to a run-up in prices in newer starter-home developments during the housing boom.
In some of those places, prices are down 10 percent or more from a year ago, according to the California Association of Realtors.
A sluggish or even declining economy can affect foreclosures.
Indiana, Michigan and Ohio are Rust Belt states that have zero or negative job growth and rank in RealtyTrac's Top 10 for having the highest foreclosure rates.
Close to home
The Albuquerque metro area, which accounts for just less than half of the state's housing stock, saw one foreclosure for every 208 households in the first half of 2007.
The metro is coming off a grim year for foreclosure activity, according to RealtyTrac.
The improvement in the first half of 2007 is seen in the 38 percent drop in foreclosure activity from a year earlier.
The high foreclosure rate in 2006 has been attributed to outside investors who abandoned their investment properties during the cooldown in housing both here and around the country.
Investors were lured to the metro by comparatively low home prices especially in relation to California markets easy financing and a surge in local home values, particularly in 2005.
"Everybody came rushing in like the cavalry, but they weren't making the kind of money they anticipated making," said Steve Cecco, president of AmeriStar Mortgage Group in Albuquerque.
Foreclosures on investment properties appear to have passed.
Foreclosure activity, which ranges from default notices to repossessions and auctions, dropped steadily in the metro between January and June of this year.
The 122 housing units reported in June was the lowest monthly total since RealtyTrac began tracking foreclosures in January 2005.
Two contributing factors to the low foreclosure rate are plentiful jobs and continued appreciation in the residential market.
The metro's job growth was 1.4 percent, or about 5,600 jobs, in June from 12 months earlier, according to the state Department of Workforce Solutions.
Unemployment was only 3.3 percent in the metro in June, a notch above the record statewide low of 3.2 percent set the same month.
Despite the residential slowdown in the metro, existing single-family houses sold in the metro continue to increase in value.
The median price has increased close to 8 percent during the first six months of this year, according to the Albuquerque Metropolitan Board of Realtors.
From RealtyTrac's ranking of the 100 largest metro areas in the country by foreclosure filings in the first six months of 2007:
1. Stockton, Calif.: 1 in 27 households
2. Detroit: 1 in 29 households
3. Las Vegas, Nev.: 1 in 31 households
4. Riverside, Calif.: 1 in 33 households
5. Sacramento, Calif.: 1 in 36 households
67. Philadelphia: 1 in 198 households
68. Albuquerque: 1 in 208 households
69. Rochester, N.Y.: 1 in 215 households
96. Norfolk, Va.: 1 in 787 households
97. Honolulu: 1 in 1,151 households
98. McAllen, Texas: 1 in 1,494 households
99. Greenville, S.C.: 1 in 1,721 households
100. Richmond, Va.: 1 in 2,319 households