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Monday, December 03, 2007

House Prices and Foreclosures, Massachusetts

by Calculated Risk on 12/03/2007 12:39:00 PM

From the Boston Fed: Subprime Outcomes: Risky Mortgages, Homeownership Experiences, and Foreclosures

... house price appreciation plays a dominant role in generating foreclosures. In fact, we attribute most of the dramatic rise in Massachusetts foreclosures during 2006 and 2007 to the decline in house prices that began in the summer of 2005.
Massachusetts House Price vs. ForeclosureClick on graph for larger image.

From the linked Fed paper, this figure compares the foreclosure rate in Massachusetts with changes in house prices. As prices rise, the foreclosure rate falls, since homeowners in trouble can either sell or refinance their homes. As prices fall, there is no way out - except foreclosure - for homeowners facing difficulties.

Last week I graphed the historical relationship for California: House Prices and Foreclosures. The pattern was the same.

Forget resets (although they are important). As prices fall over the next couple of years (or longer), foreclosures will rise, with or without resets. And a real concern is that it will become socially acceptable for underwater prime borrowers to just mail their keys into their lender (what Fleck calls "jingle mail").