|August 7, 2008
Hatteras Island Real Estate: Foreclosures revisited
By TOM HRANICKA
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
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
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
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
• 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
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
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.