Surf’s up dude…

This week as I studied the statistics from last week an interesting thing popped out. It may be just a one week anomaly or evidence of the start of a long awaited second wave of foreclosures – this round based upon job losses and not just bad loans. What I see in the data from last week is that there are more foreclosed houses above the sold median price than below it. These are houses that are in the $160K and up, many well above 200K. The median sold price in the markets that I’m tracking weekly is $154K so far this year.

What I think I’m seeing here is a wave of foreclosures by people who were able to hold on initially and make their payments; likely people who had good jobs or maybe both adults worked at fairly good jobs. Then something happened. One partner may have lost their job or perhaps lost all of their overtime or something. Now they can no longer hold on. In this area a lot of job losses can be attributed to layoffs in the automotive industry. These are upscale houses in neighborhoods that would have been considered to be white-collar communities. So it is a fair bet that the main breadwinner got wacked in one of the recent layoffs. The way that people are leveraged these days most can not hold out more than a month or two before they start missing mortgage payments and it’s a rapid downhill slide from there.

As part of my weekly research I also look at the public record for each house that has sold and for many of the foreclosed houses there are entries that also point to possible divorces that occurred first and then the foreclosure. Unfortunately an increase in divorces is another sad side effect of the hard economic times. Many marriages cannot survive the stress of financial hardship and many breadwinners react badly to the loss of their jobs and slide into bad habits that break up families.

At a minimum, I’m seeing a much higher foreclosure rate in a much higher income bracket (at least it used to be higher). That is also throwing a whole new class of foreclosed home onto the market – last year’s McMansion is this year’s foreclosed home. Homes that were $300-400,000 are now selling down in the high $200K’s as distressed homes. Some are in great shape and are great bargains; however, the very people who would normally be looking in that price range are hunkered down in their own homes, which have lost so much value that many of them are upside-down on them. These would-be “move-up buyers” can’t sell them are stuck where they are and probably afraid at this point to take on more debt.

We’ll get through this, just as we have the other waves of foreclosures, but out on the not to distant horizon is the next wave of ARM-reset foreclosures, which is scheduled for January 2010, and which many predict will be of tsunami strength. Surf’s up, dude!