Arizona will close out 2010 with a record number of home foreclosures, marking the third straight year of staggering growth for bank repossessions.
From January through November, 65,911 Arizona homeowners lost their houses to the mortgage holder, 12 percent more than were taken in all of record-setting 2009, according to foreclosure listing firm RealtyTrac Inc. Banks and loan companies were on track to take thousands more homes in December.
The coming year doesn't look much brighter for homeowners, as Arizona's unemployment rate remains stubbornly high and more adjustable rate mortgages come off low teaser rates. A 50 percent drop in home values from the 2007 peak, and tighter lending standards, are preventing many homeowners from refinancing.
But efforts by the federal government to push banks to modify troubled loans should keep the numbers from soaring too much higher, said Daren Blomquist, communications director for Irvine, Calif.-based RealtyTrac.
"We don't see it a lot worse, but we also don't see it getting a lot better," Blomquist said. "We don't see it getting a lot worse because there are a lot of fail-safes in place to try to keep foreclosures from getting worse. You have all the foreclosure prevention programs, which are having some effect, you have lenders who for whatever reason are much slower to foreclose and aren't just slamming the market with foreclosures as soon as they get them."
Other experts who watch the state's housing market aren't so sure that the worst is over for the foreclosure mess. One of those is Jay Butler, an Arizona State University real estate studies professor.
Several major lenders temporarily halted foreclosures this fall after criticism that they had taken shortcuts in legal documents, leading to a dip in repossessions last month. But those delayed foreclosures are expected to start reappearing soon. Butler said an increase in foreclosures is virtually certain early in 2011, for that reason and others.
"I think a lot of people have used all the resources they had to keep their home and they've just grown tired of the whole process and will plan to move on," Butler said. "They thought by now maybe they'd be more secure in their jobs, or have a job. But we're still talking about potential furloughs and layoffs. A lot of the economic issues in the environment have not been cleaned up and people are going very frustrated."
Much of the pain is in the Phoenix area, which accounts for about two-thirds of the state's foreclosures. But Tucson and smaller cities and towns are also suffering.
The U.S. is on track to have more than a million homes lost to foreclosure in 2010, and RealtyTrac's Blomquist said another million could come in 2011.
The foreclosure crisis hit the nation and Arizona with a vengeance starting in 2007, when the mortgage markets froze and exotic subprime mortgages led to widespread lender failures. Foreclosures soared and the price of an average resale home in the Phoenix market slid from $260,000 in 2007 to $140,000 in the third quarter of 2010, according to ASU studies.
Phoenix-area home prices, after stabilizing in mid-2010, slid again starting in August. What's more troubling is that banks are taking longer to begin the foreclosure process. Bank of America Corp.'s CEO said recently that in the third quarter, homeowners were delinquent an average of 560 days before his bank began foreclosure proceedings. Normally, 90 days delinquency starts the process, Blomquist said. Also, RealtyTrac's database shows only about 30 percent of the homes taken by banks this year have been put on the market, leaving a large 'shadow inventory' that could hamper price appreciation.
The collapse brought Arizona's once-booming home construction industry to a virtual standstill. Thousands of foreclosed tract homes are now boarded up, and there's an inventory of more than 60,000 vacant homes.
RealtyTrac's foreclosure numbers for Arizona tell the story: In 2006, just 1,196 homes were taken by banks, but that soared to 12,107 in 2007, 50,608 in 2008, and 58,552 in 2009.
If December's foreclosures reach the monthly 2010 average of about 6,000, more than 70,000 Arizona homes will have been lost to foreclosure this year.
The foreclosure mess also led to a widespread loss of homeownership, with an estimated 80,000 Phoenix-area homes now being rented by former homeowners, said Elliott Pollack, who runs a respected economic and real estate consulting firm in Scottsdale.
For many who have managed to keep their homes, there is more bad news: More than 50 percent of the homeowners in the Phoenix area owe more than their home is worth and are "underwater" on their mortgages.
For those homeowners, economic forecasts that show the economy slowly improving in the coming years may bring little relief. They're either going to lose their homes to foreclosure or a short sale, or be stuck in them because they can't sell them for enough to pay off the mortgage.
"By the time the housing market is back to normal, which I think is 2014 or '15, ... housing prices I think have to go up 60 percent from where they are today," Pollack said. "Now, that 60 percent from where they are today, as outrageous as that sounds, still leaves you 30 percent below the peak. So if you bought in 2005-2006, and you had a large mortgage, you're still underwater, you're still not moving, or you're sending your keys back to the bank."