(Foreclosure Monitor is an effort by MHP to help public officials determine how best to use their resources to help homeowners and neighborhoods hard-hit by foreclosure).
By Tim H. Davis
BOSTON, Feb. 4, 2014 --- When it comes to the real estate recovery, there are two Massachusetts, one where the recovery is strong and prolonged, the other not as much.
This fact was made clear in Foreclosure Monitor’s latest analysis of foreclosed properties as the data shows that the raw number of properties in foreclosure distress in Springfield has surpassed that of Boston, despite the fact that Boston is over four times bigger than Springfield.
Foreclosure Monitor defines properties in distress as those one- to three-unit properties where a foreclosure petition has been filed or an auction scheduled in the previous year, or the property has been bank owned (REO), for up to two years.
The reason for Springfield surpassing Boston is only partially due to the performance of these two cities in the last year. In its latest look at foreclosure distress data, Foreclosure Monitor found that the number of properties in distress declined 61 percent in Boston and 50 percent in Springfield in 2013. This is a remarkable improvement for both cities.
The difference is Boston’s decline in distress has been going on longer. For example, the number of properties in distress declined 14 percent in Boston during 2012, while there was no change in the number of properties in distress in Springfield in 2012.
As a result, as of Oct. 2013, the number of properties in distress in Springfield (655), surpassed that of Boston (647), and that gap widened over Q4 2013, as there are currently 490 distressed properties in Boston and 519 in Springfield (See Chart 1).
Since a higher proportion of Boston properties in distress are two- and three-family homes, Boston still has a higher number of units in foreclosure distress (755) compared to Springfield (661). But as Boston’s housing market continues to improve, the number of units in distress in Springfield is set to eclipse that of Boston (See Chart 2).
Springfield continues to wrestle with foreclosure issues despite the fact that it has one of the most coordinated efforts in the state in identifying and dealing with foreclosed and abandoned properties. During the real estate crisis, the city's housing department worked closely with its inspectional services division and the housing court to build a data base of properties in distress. It then identified which properties could be saved and worked with MHP, the Massachusetts Housing Investment Corp. (MHIC) and the state Attorney General's Office to stabilize properties through receivership programs and funding programs like the state's Neighborhood Stabilization Loan Fund, federal stimulus funds and a small-scale rehab fund run by the state and the AG's office. According to a summary report issued by MHIC in the fall of 2012, Springfield was second only to Worcester among the state's smaller cities in its use of these programs to stabilize foreclosed properties. Funding for many of these programs is no longer available but Springfield has consistently demonstrated the ability to use resources like this effectively for neighborhood stabilization.
The Springfield-Boston comparison mirrors what Foreclosure Monitor reported in its November edition: the difference in the decline in foreclosure distress between certain Greater Boston urban communities and other communities hinges on when each market began its recovery. Like nearby Everett, Revere and Chelsea, Boston began its price recovery in 2009 and has experienced sharp drops in foreclosure distress. Meanwhile, cities like Fitchburg, Pittsfield, Fall River and Springfield did not see price recovery until 2011 or 2012 and thus their distress recovery isn't as strong. This is a big reason why when it comes to recovery, there are really two Massachusetts.
Overall foreclosure distress shows dramatic improvements
Overall foreclosure distress in Massachusetts declined 53.4 percent from Jan. 2013 to Jan. 2014, from 9.5 units per 1,000 housing units, to 4.4 units per 1,000 housing units. The Foreclosure Monitor focuses on foreclosure problems facing the state's so-called gateway cities, as well as Boston’s most distressed neighborhoods. While Boston had a 61 percent decline in distress over the last year, both the gateway cities and the suburban and rural areas that make up the rest of the state had a smaller, but still strong 53 decline in distress. Given the relative improvement in Boston, the percentage of distressed housing units in Massachusetts’ suburban and rural areas went from 54 percent to 55 percent of the total.
End-of-year foreclosure petition data has not yet been released, but it is expected that the number of foreclosure petitions (the start of the foreclosure process) will be down over 60 percent from 2012 to 2013. While some of this decline can be attributed to the improvement in the real estate market, some can be attributed to lenders holding back while new state foreclosure regulations were implemented. Due to this implementation, the number of petitions filed per month bottomed out in June (245 petitions), but recovered over the remainder of the year to a range of 350 to 450 petitions per month.
Given the health of the market, foreclosure deeds should continue a rapid decline, and the number of foreclosure petitions should also decline, but putting a specific number of the decline in distress is difficult. Data is not readily available on lenders’ backlogs of mortgage delinquencies, as well as their appetites to approve work-outs (refinances) and short sales.
Foreclosure distress declines in all 24 gateway communities
The Foreclosure Monitor regularly provides quarterly analysis of changes in foreclosure distress in the state's 24 so-called gateway communities (see Table 1). These communities represent just 25 percent of the state's housing units, but account for 39 percent of the state's foreclosure distress. In addition, the gateway communities have an overall distress rate that is 56 percent higher than the state's.
This edition of Foreclosure Monitor found that for the third quarter in a row, all 24 communities saw year-over-year declines in distress. The largest decline was in Everett (-68 percent), followed closely by Malden (-65 percent) and Revere (-64 percent). Indeed, both Everett and Malden, along with Quincy, Westfield, and Barnstable, have rates of distress than are lower than the state as a whole.
The smallest decline was in Fitchburg (-34 percent). Brockton continues to have the highest level of distress both among the Gateway communities and all Massachusetts municipalities. Despite a 52 percent decline in distress over the last year, Brockton’s distress is three times the statewide level.
30 most distressed Gateway tracts confined to 7 cities
Since the number of housing units in each gateway city can vary dramatically, it's useful to analyze distress by census tracts, which generally range from 1,000 to 3,000 units. This helps provide state and local leaders with a better idea of exactly where property distress and neighborhood destabilization may be occurring and where public resources may have the most impact.
According to our analysis, as of Jan. 1, 2014 the 30 most distressed census tracts in the state's gateway cities were confined to just seven cities, unchanged from one year ago. Twenty-three of these tracts were among the state's 30 most distressed census tracts, down from 28 in Jan. 2013 (see Table 2).
Among the facts this table shows are:
• Brockton had the highest number of census tracts (12), unchanged from last quarter. Springfield was close behind, with eight tracts.
• Distress declined in every tract, but improvement was weak in Fitchburg’s 7108 (-7 percent) and Springfield’s 8015.02 (-4 percent).
• The biggest decline in distress was in Springfield's tract 8017 (-60 percent).
• One year ago, Lynn and New Bedford had tracts in the top 30. While this is no longer true, Leominster and Fall River do now have census tracts in the top 30.
Boston distress rate improving faster than state
The overall distress rate in Boston as of Jan. 1, 2014 was 2.8 units per 1,000 housing units, below the statewide rate of 4.4 per 1,000 units. Compared to a year ago, Boston's distress rate has declined 61 percent, faster than the statewide decline of 53 percent.
Table 3 below provides detailed information on the 30 most distressed tracts in Boston. By neighborhood, the breakdown of these tracts was: 15 tracts in Dorchester, five tracts in Hyde Park, four tracts in Mattapan, three tracts in Roxbury, and one tract each in East Boston, Jamaica Plain, and West Roxbury.
For Jamaica Plain and West Roxbury, this is the first time in the Foreclosure Monitor that tracts in these neighborhoods have appeared in the top 30. The appearance of these two tracts is not due to a spike in foreclosure activity, but rather reflects the relative improvement of other neighborhoods.
Distress in suburban and rural communities
While the Foreclosure Monitor focuses on Massachusetts' most distressed urban neighborhoods, it is also important to note areas of distress elsewhere in the state. Of Massachusetts’ suburban and rural municipalities, the 30 most distressed are presented in Table 4. Of these top 30 most distressed, all had a decline in distress from Jan. 2013 to Jan. 2014, though the decline was small for Princeton (-9 percent) and North Brookfield (-10 percent). The most distressed municipalities continue to be concentrated in Central and Southeastern Massachusetts.
Of these 30 municipalities, 22 are located in the central Massachusetts’ Worcester County, or are immediately adjacent to Worcester county (see map). As in Springfield, these central Massachusetts communities are on the lower tier of the two tiered housing recovery. While the Massachusetts sales prices recovery began in 2009, these communities have only seen recovery since 2011 or 2012, and single-family sales prices, are, on average, 25.6 percent below their pre-recession peaks, compared to 9.9 percent for Massachusetts as a whole.
Other trends in real estate, foreclosures
The following links are provided for readers to directly access regular sources of foreclosure and real estate trends:
• Real estate sales data: The Warren Group and the Massachusetts Association of Realtors (MAR) recently released their monthly and annual real estate sales figures. The two use somewhat different data sets for analysis. The Warren Group reported a 0.3 percent decline in the number of single family sales from Dec. 2012 to Dec. 2013, and a 3.7 percent increase in median single family sales prices, while the Mass. Association of Realtors reported a similar, 0.2 percent decline in single family sales, but a larger 6.3 percent increase in median single-family sales prices. Both sources cite a lack of inventory for upward pressure on prices. This lack of inventory is not due to a decline in the number of properties listed, but an increase in demand that outstrips the increase in supply. According to MAR data, the number of single-family homes and condominiums listed on the market in Q4 2014 increased 9.0 percent, but a 17.1 percent increase in sales during the quarter outpaced the increase in supply, leading to the relative lack of inventory. For all of 2013, The Warren Group reports a 4.9 percent increase in sales of single-family homes compared to 2012, and a 10.3 percent increase in the median sales prices. Over the same period, MAR reports a 7.1 percent increase in sales, and a 9.2 percent increase in the median sales price. With prices on the increase, the percentage of Massachusetts homeowners with "underwater" mortgages (negative equity) continues to decline. As of Q3 2013, CoreLogic reports that 10.4 percent of Massachusetts homeowners with a mortgage have negative equity in their homes, compared to 15.3 percent in Q3 2012. Nationally, 13.0 percent of homeowners with a mortgage had negative equity in Q3 2013, down from 22.0 percent in Q3 2012.
Home prices: The S&P Case-Schiller Price Index recently released its Nov. 2013 data. Prices are rising substantially, with a 13.7 percent increase from Nov. 2012 to Nov. 2013, for its 20-city composite. Prices increased in all 20 cities, and prices increased 9.8 percent in Greater Boston, placing Boston 15th of the 20 cities measured. This increase represents an acceleration from the 8.6 percent increase reported for Oct. 2012 to Oct. 2013. The smallest price increases were in Cleveland and New York (tied at 6.0 percent). The biggest annual price increases were in Las Vegas (27.3 percent) and San Francisco (23.2 percent), continuing a pattern seen over much of 2013. For the 20-city composite, prices have not yet recovered to the pre-recession peak, but two of these cities, Dallas and Denver, have fully recovered, and prices in these two cities are now at record highs. Prices in the remaining 18 cities have not fully recovered, though Boston and Charlotte have recovered the most. In both cities, prices are only 6.3 percent below the pre-recession peak. At the other end of spectrum, Miami’s prices remain 37.2 percent below the previous peak.
• Foreclosure data: According to CoreLogic, the number of foreclosures completed in Massachusetts declined 56 percent, from 6,534 homes in 2012, to 2,873 homes in 2013, and compares favorably with the national decline of 19 percent over the same period.
(Tim Davis is an independent research consultant commissioned by MHP to do foreclosure analysis and the Foreclosure Monitor).