Monday, July 5, 2010

Welcome to the Whipping Post: Oregon is now the #3 Foreclosure State in the Nation

The painful reality of the housing bubble is starting to find its way to Oregon and Portland, and in many ways, the housing bust is just beginning here at this juncture. We now find ourselves ahead of Michigan, California, and other smoking black holes of real estate depreciation. Regular readers here know that not only was Oregon late to the housing bubble, but we were late to the "great recession".

" "It's very discouraging," said Tim Duy, an economics professor at the University of Oregon. "For all those people who said, 'No, we don't have a housing bubble,' well, we did." "

"The rising foreclosure numbers are in part a function of timing. Oregon was late to enter the recession, and it stands to reason that its foreclosure rate will stay higher longer than other states that crashed earlier, said Josh Harwood, senior economist for the state of Oregon."

2010 - 2012 will serve as a painful and stark wake up call for many a Portland area loan owner, as even the most verdant and stubborn bubble era stakeholders face cash flow based reality, and succumb to economic pressures. It cannot and will not be different here. Wages in Oregon and Portland do not support structurally higher housing prices. It's just that simple.

"Multnomah County property records provide a somewhat more precise glimpse of the housing bust in action.

In 2006, at the height of the housing boom, about 300 county residents lost their home. In 2007, when the mortgage lending industry collapsed and foreclosures soared in much of the nation, Multnomah County was still fairly quiet. By the end of the year, 417 local residents had lost their homes.

At the time, area real estate and mortgage officials insisted Oregon was different and somehow protected from the housing crash. Builders here hadn't overbuilt (thanks more to the state's land-use laws than to any developer restraint). In-migration was still strong and the long run-up in Oregon home prices would continue, they predicted.

It was wishful thinking.

Nearly 1,100 county residents lost their homes to foreclosure in 2008, more than double the figure from a year before. It only got worse in 2009, when more than 1,900 locals gave up their homes.

Many hoped that 2009 marked the bottom of the ugly cycle. And it's true that new defaults are down slightly in 2010 from the prior year. But the number of completed foreclosures in the county is on track to top 2,000, well in excess of 2009.

Far from immune to the housing crash and resulting foreclosure wave, Oregon has proved to be exceptionally vulnerable to it. Between its large number of construction contractors, timber products workers, mortgage and real estate professionals, Oregon's economy was over-reliant on the housing industry, said Mark Vitner, senior economist at Wells Fargo.

Plus, Oregon's relatively low-wage economy paired with rapidly appreciating housing prices to create a situation in which many Oregonians borrowed heavily to get in their homes. Many worsened their situation by tapping into their home equity via second and third-mortgages.

Lenders, many of whom adopted reckless underwriting standards during the boom, showed little consideration for how much borrowers were leveraged."

Residents of other bubble plagued housing markets have seen various forms of "bailouts" from state and federal sources, but at the end of the day, bad debt is just that. Bad debt. Stimulus, bailouts, and modification programs only serve to kick the can down the road and delay the inevitable. Those who cannot pay simply won't.

Many will game the system, and live for free. Either way, the end result will be the same. Housing and real estate prices in Oregon and Portland will be dropping precipitously from here going forward. Most will only start to notice in late 2010 and into 2011. If other major markets can provide a lesson, we should clearly see that most of the carnage in Oregon and Portland will not relent until 2012-2013.

Some help may be on the way.

The state is hurriedly crafting its Oregon Homeownership Stabilization Initiative, a program that could disburse $88 million in federal dollars to homeowners struggling to fend off foreclosure.

The details of the program, including the qualifying standards, are still being worked out. But state officials hope to have a pilot program running by late summer or early fall.

More information is available at

The new federal assistance is good news, said Angela Martin, of Our Oregon, an advocate for consumers in the foreclosure fight. But she said the financial industry should be required to match the $88 million. After all, the money will simply pass through homeowners to the nation's lenders and loan servicers anyway.

"The taxpayer is bearing the brunt of this," Martin said. "The banks need to step up. It was the greed and abuse of trust by the financial industry that put these homeowners into these terrible loans."

Homeowners can only hope that the new assistance program works better than the U.S. Treasury Department's initial effort -- the Making Homes Affordable program, which pays servicers to modify struggling homeowners' loan terms.

Making Homes Affordable has secured at least temporary modifications for 340,000 people. But the program has more dropouts than success stories. Many participants have been unable to make even their lowered mortgage payments."

Although the SF FED Reserve graphs in the prior post below provided all the data one needed over a week ago to make a similar assessment, many a Portland resident will find the anecdote in the Oregonian story printed on Saturday to be much more of a wake up call. When a 20 something college kid can "buy" a home in John's Landing, and then seek bailout modification mortgage assistance because they could not find a job after graduation to make payments -money was lent that could never be paid back. Bad debt. The loan should have never been made in the first place. Easy money! Easy come...easy go.

Welcome to the whipping post Portland. You've all heard about how bad the housing bubble was somewhere else, now it's time for your turn. If other major metro markets are a predictor of what's to come, we'll be here well through 2012 as wage based reality hits home.

Source: The Oregonian




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