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Foreclosure shock
Denver market sees 31.5% increase from first quarter of 2005
By John Rebchook, Rocky Mountain News
March 29, 2006
Rising interest rates, a glut of unsold homes on the market and falling home prices in some submarkets drove up Denver-area real estate foreclosures by more than 30 percent in the first quarter of this year compared with the first three months of 2005.
The 31.5 percent jump is the largest year-over-year percentage increase for a quarter in almost two years.
The jump to 4,764 foreclosures compared with 3,624 in the first three months of 2005 took some experts by surprise. Public trustee offices in Adams, Arapahoe, Boulder, Broomfield, Denver, Douglas and Jefferson counties estimated the number of foreclosures they expect to open this month.
"That is disturbing," said economist Patty Silverstein of the soaring number of foreclosures.
"We still expected to see increases in 2006, but this is larger than what I would have expected. At this point in our economic recovery, we would have expected to have seen a smaller increase in foreclosures," said Silverstein, principal of Development Research Partners.
She said that a main culprit appears to be interest-only and other variable-rate loans that homeowners have taken out in huge numbers in recent years to reduce their monthly mortgage payments.
"A lot of people have taken out these different types of mortgage products during the past couple of years, and now people are discovering that their payments are starting to ratchet upward with rising interest rates," Silverstein said.
Sean Healey, the broker-owner of Keller Williams Preferred Realty, said he was not surprised by the number of foreclosures and believes the market has a couple of years of pain ahead.
"What I see is not pretty," said Healey, who also heads the Healey Group and hosts a radio talk show called The Real Estate Advocate on KKZN (AM-760).
He said the number of unsold homes on the market has been growing by an average of 2.5 percent a week. The increasing supply is putting downward pressure on sale prices, especially for the lower-priced homes most likely to go into foreclosure.
That's a vicious cycle because it forces more sellers to lower their prices, driving even more houses into foreclosure, Healey said.
"Primarily, I see a huge glut of homes priced under $300,000," Healey said. "Under $200,000, it is just a blood bath, a path of devastation. It is just ugly."
In some areas of Adams County, sellers of lower-priced homes are finding that the market value of their home is down 15 percent to 17 percent from what they paid a couple of years ago, Healey said.
When the mortgage is worth more than the home and the owner is forced to sell, it is almost inevitable they will end up defaulting on their mortgage and lose the home to their lender, he said.
Healey said some people have lived in homes for six to 12 months without making a payment before the lender forecloses.
Economist Tucker Hart Adams said that foreclosures are a lagging indicator and will continue to rise even as the economy gets back on its feet.
"I don't know if they're going to continue to rise by 30 percent, but they are going to continue to rise," Adams said.
She said she recently was a guest on Healey's radio show and received a call from a woman who said she and her husband have good-paying jobs but are in danger of losing their home because they had borrowed all of the equity from the house and their credit cards are maxed out.
She wanted advice from Adams.
"I guess you just have to spend less on everything else" in order to keep the house, Adams said.
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