August 7, 2008

Hatteras Island Real Estate: Foreclosures revisited


Earlier this year, I wrote an article for the Island Free Press that attempted to provide a balanced view on the fear-based headlines about the real estate market that the public was reading and hearing.  The article concluded with the opinion that there was no question that challenges existed in the mortgage and real estate industries, but the overall picture was not as bleak as media reports would suggest.  Since then, news articles and television reports have continued to unnerve us with statistics about skyrocketing foreclosure rates and plunging home values.  In this article, I would like to examine the foreclosure environment in more detail.

Let’s begin with some summary observations and allow them to lead us into a more detailed investigation of the various dimensions of the foreclosure statistics.  Perhaps, a statement made in June by the Mortgage Bankers Association offers the clearest one sentence summary of current conditions – “While the foreclosure start rates were up for all types of mortgages…, the magnitude of the national increases is clearly driven by certain loan types and certain states.”

 The Association’s first quarter report then goes on to identify problems in California and Florida as the main drivers of the national trend, with Arizona and Nevada also contributing heavily to the record-setting increases in the number of properties entering the foreclosure process.  These four states combined accounted for 42 percent of the foreclosure starts in the United States between January and March. Prime and sub-prime adjustable rate mortgages were the types of loans most prominently associated with the foreclosure data.  The number of delinquent loans (those more than 30 days late) also increased during the first quarter.

Reports from RealtyTrac, a company that publishes the largest and most comprehensive database of foreclosure and bank-owned properties, tells much the same story for the second quarter. 

“Although much of the fallout from foreclosures is being driven by rampant activity in a few states, such as Nevada, California, Florida, Ohio, Arizona and Michigan, most areas of the country are seeing at least some increase in activity.”

They also noted that some areas are seeing declines.

With these overviews to guide us, it seems clear that foreclosure activity is increasing around the country, but four states are responsible for a very significant portion of the increases that we are seeing.  In some ways this broad generalization is like saying the average temperature for the United States this summer is setting records, led by the desert southwest.  The statistics may be accurate, but they don’t tell us a whole lot about what is happening in our local area. 

Last weekend, The Virginian-Pilot newspaper ran an article that looked at foreclosure filings in northeastern North Carolina counties.  The summary lead-in to the article stated – “While the foreclosure filings in the first half of 2008 in the eight northeastern counties is relatively small, at 308, it’s a 1,183 percent increase from the 24 filings in the same period in 2007.” 

Dare County accounted for 113 of the 308 foreclosure filings.  This article provides some context for the discussion of local foreclosures, i.e., relatively small absolute numbers but high percentage changes.  Which measure, absolute numbers or sky-high percentages, do you think will capture the headlines? Both are certainly valid, but the percentages elicit a much more dramatic reaction.

Now, let’s turn our attention to Hatteras Island.  After screening the foreclosure filings for Dare County, my best estimate is that 54 properties on the island entered the foreclosure process between January and June of this year.  If we compare this figure to the total number of privately owned real estate parcels on Hatteras Island, a little over 8,500, then we reach the conclusion that approximately six tenths of one percent (0.6%) of the privately owned real estate parcels entered the foreclosure process in the first six months of the year.  Looked at another way, an average of about 9 properties per month experienced foreclosure filings.

I want to be very clear at this point. I am not attempting to minimize the foreclosure issue.  A single property entering foreclosure is one too many in my opinion.  The personal anxiety and financial distress that are associated with foreclosures cannot be underestimated or reduced to statistical measures, and we should always be cognizant of the fact that there are real people with real needs and feelings behind each of the numbers that we see and hear on a daily basis. My goal is to provide some perspectives on the information that is being reported.

With this sensitivity in mind, there are some other relativities that might help us to make reasonable judgments about the impact of foreclosures in the Hatteras Island real estate market. 

•    Presently, there are about 483 residential properties for sale on the island.  The Outer Banks Association of Realtors Multiple Listing Service records reflect that only five of these properties are lender-owned. 
•    Similarly, there are 305 unimproved lots for sale, five of which show lenders as the owners. 
•    Two residential properties and no lots that are under contract to be sold are identified as lender-owned. 
•    Ten homes out of 61 sold during the first six months of the year were corporate or bank owned.  None of the 25 unimproved lots that were sold during this period were foreclosed properties. 
•    In total then, of the 8,500 privately owned parcels on Hatteras Island, approximately 22  foreclosed properties are either listed for sale, are under contract, or were sold (three tenths of one percent).

It is important to note that this business of researching and tracking foreclosures is not an exact science.  For example, many of the statistics that you have seen quoted in this article represent the number of properties entering the foreclosure process vs. actual foreclosures.  It is very difficult to track properties from the point that foreclosure action is initiated to the final outcome.  In fact, I think it is accurate to say that most of the properties that enter the foreclosure process never end in full foreclosure.  The owners renegotiate the terms of the loan, obtain a forbearance agreement, sell the property, or find some other solution, thereby avoiding foreclosure. Moreover, the underlying databases that the various organizations use to produce their reports are not always the same.  Therefore, my belief is that the news items that we read should be considered directional estimates rather than definitive statements of fact concerning foreclosure patterns.    

By now, you have probably had enough of the numbers – where’s the beef?  My observations and conclusions are fairly simple and straightforward.  I believe that foreclosure activity on Hatteras Island is certainly important, but it is by no means of crisis proportions.  While the number of properties entering foreclosure has been fairly constant since the first of the year, I am anticipating that the number of foreclosure filings will increase as adjustable rate mortgages reset over the next few years. Declining prices may also contribute to the increase as more owners potentially find their properties worth less than what they paid for them. 

However, I do not expect that foreclosure activity on Hatteras Island will become a predominant factor in the real estate market.  I am confident that the majority of owners in distress will be able to work out some mutually agreeable solution with their lenders.  I also believe that actions by both the lending institutions and by the federal government will, over time, have a muting effect on foreclosures.  Lenders do not want to own properties, and the government does not want to see millions of individuals and families lose their homes.

I would like to end this article with the advice that if any of our readers find themselves in a problematic situation with their mortgages, please seek guidance and counsel at the earliest possible point from trusted advisors, such as your lender, attorney, accountant, and Realtor.  In most cases, there are a variety of options that are available to help you avoid foreclosure.  One specialist who follows foreclosures very carefully recently expressed the opinion that 7 out of 10 property owners who face foreclosure have never sought assistance of any kind.  Whether this estimate is accurate or not, the need for knowledgeable assistance cannot be overstated.

As you read the newspapers and listen to the television, keep some of the perspectives offered by this article in mind.  Foreclosures are a meaningful issue at the local, national, and even at the global level, but in the end, all real estate is local, and those are the statistics that you want to acquire and understand in order to make well-reasoned decisions.  I will do my best to keep you informed.

(Tom Hranicka is an associate broker with Outer Beaches Realty. Questions, comments, or suggestions for future articles may be sent to Tom Hranicka at P.O. Box 237, Avon, NC  27915, or e-mail to [email protected] )

Copyright©2007 Tom & Louise Hranicka.  All rights reserved.


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