It’s liable to be a rough ride ahead as foreclosures rise in what’s been a sizzling heartland housing market.
As the Huffington Post reports, Stateline points to a number of problems as possible causes for an uptick in foreclosure starts in areas where houses have been a hot ticket—places like Denver, Austin, Dallas, Nashville and Columbus, Ohio.
And if it’s bad in those areas, it has the potential to be much worse in weaker housing markets, according to James Gaines, chief economist at Texas A&M University’s Real Estate Center.
The report cites Gaines raising the possibility that if more homeowners go underwater, owing more on their mortgage than their homes are worth, it could set off a cascade of foreclosures similar to the one from 10 years ago.
So what’s contributing to this potential disaster?
A heartland affordability crisis, underemployment for many in the middle class, banks that offer loose credit and low down payments and debt-stricken retirees, the report says, and it could not just be bad for currently booming housing markets, but also take a toll on economic recovery in the Rust Belt.
Although thus far the national foreclosure rate isn’t bad, the growth of foreclosures in “high-flying” real estate markets in cities like Denver and Austin could mean bad times ahead of credit gets too loose, according to Daren Blomquist, a vice president at ATTOM Data Solutions, which tracks foreclosure starts.
Blomquist said in the report that the highest rates of foreclosure in Austin, Dallas, Denver, Nashville and Columbus are for mortgages that started in 2014—with low down payments designed to entice first-time buyers.
What it may have done was fill the market with people who don’t have a whole lot of incentive to stick it out because they don’t have a whole lot of equity in the homes they bought.
But another troubled and growing group, according to David Berenbaum, CEO of the Homeownership Preservation Foundation, a nonprofit that operates a telephone hotline for homeowners who face foreclosure, is boomers hitting retirement age while still paying off their kids’ student debt.
The Sandwich Generation already has it pretty tough, with many having had a difficult time finding work or staying employed after the Great Recession, and others not only footing tuition bills but also caring for aging parents—a process that’s caused many to dip into their own retirement funds just to cover all bases.
And plenty of workers are feeling the pressure of financial woes, with their sense of financial well-being on the decline in a sharp reversal of where they were just two years ago.
In the report, Berenbaum pointed out that even though job security has improved a bit as unemployment falls, he hears from many middle-class people who are underemployed in part-time or low-paying jobs and can no longer keep up with payments. He’s quoted saying, “A stronger economy doesn’t necessarily translate into stronger income for homeowners.”
In addition, the foundation is hearing from people later in the process of foreclosure, when it’s harder to extricate them from their financial woes.
And there could also be trouble ahead in South Florida and Houston, the report adds, with people unable to find work in the wake of the hurricanes this year.
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