By Luke Mullins
Posted: April 23, 2010
Slide Show: 10 Cities Facing Double-Whammy Defaults
Nearly four years after the real estate market peaked, an alarming number of Americans remain in danger of losing their homes. A non-seasonally adjusted 15 percent of home mortgages were either delinquent or in foreclosure at the end of the fourth quarter of 2009, according to the Mortgage Bankers Association. That's the highest-ever tally in the history of the MBA's National Delinquency Survey.
Mike Larson of Weiss Research points to two key factors behind these high delinquencies. Sharply falling real estate values have put about 21 percent of homeowners underwater, meaning that they owe more on their mortgage than their home is worth. Property owners in this position—which is also known as having negative equity—may find it in their best interest to simply walk away from the home (even, in some cases, when they can afford to make their monthly payments). At the same time, an uncomfortably high national unemployment rate of 9.7 percent means that many Americans won't have the income they need to pay their bills.
[Slide Show: 10 Cities Facing Double-Whammy Defaults.]
Today, some particularly hard-hit markets are in the unenviable position of having both elevated unemployment and high concentrations of negative equity. "Clearly, those are the markets where you are going to see some of the worst metrics on the foreclosure side," Larson says. "You are going to see a lot of people walking away [and] you are going to see a lot of distressed inventory that's being dumped on the market." To pinpoint housing markets that are facing these twin default risks, U.S. News compared negative equity data from Zillow with unemployment figures from Moody's Economy.com. (All data refers to the fourth quarter of 2009.) Based on this data, here is a look at 10 cities that face a double whammy of default risks.
[See How Strategic Defaults Are Reshaping the Economy.]
1. Las Vegas: Speculators and exotic loans pushed home prices in this gambling Mecca dramatically higher during the first half of the previous decade. But after peaking in 2006, the real estate market's crash cleaned out investors and submerged an alarming portion of area homeowners. Through the fourth quarter of 2009, more than 81 percent of single-family home mortgages in Las Vegas were underwater. Meanwhile, the implosion of the housing sector has hammered the local labor market, says Larry Murphy, the president of SalesTraq. When the housing market was sizzling, construction emerged as a key job provider for Las Vegas residents. But as home prices tumbled, the jobs disappeared. "When the housing market goes in the tank, the construction market goes in the tank," Murphy says. "Then you have unemployment and those people can't buy [property] and so it's kind of like a death spiral." The unemployment rate in Las Vegas reached 13 percent in the fourth quarter of last year.
2. Merced, Calif.: California residents looking for alternatives to pricey big cities helped send home prices surging in places like Merced during in the early to middle parts of the last decade. Real estate values in this city of 77,000 residents, which is located east of San Francisco, increased at monster rates before running out of steam in 2006. The proliferation of exotic, adjustable-rate mortgages played a key role in this development, says John Walsh, the president of DataQuick. But the subsequent crash dragged more than 64 percent of area homeowners underwater through the fourth quarter of 2009. And the impact of the real estate bust stretched beyond home prices. "You go to places like Merced and you've got a real significant percentage of the population [that] was involved in either home building, home financing, or home sales," Walsh says. "And all of the sudden all three pieces of those are gone." As a result, Merced's unemployment rate stood at 19 percent through the fourth quarter of 2009.
3. El Centro, Calif.: The same forces that upended Merced's housing and labor markets also hammered the city of El Centro, Walsh says. Residents looking for a cheaper alternative to nearby San Diego moved to El Centro, increasing home prices in this city of 40,000, Walsh says. But when home prices crashed, nearly 57 percent of homeowners found themselves underwater through the fourth quarter of 2009. And without real estate-related industries churning out jobs, the unemployment rate has hit nearly 30 percent.
no new jobs are going to come along as long as we import all the good we need from china or any where. We need to redevelop our manufacturing infrastructure
something thats been sold off over the last twenty years.
Congress has to implement duties and tariffs on these so called cheap imported goods to help create an environment favorable to spur our manufacturing base back to life.
You got Vegas right! We are seeing more and more default mortgages. We have LESS foreclosures but more short sales.
We the people of this Great country had better get our heads out of the sand, if you get the drift. Lots of us go to the store and take extra time to buy American Made. And we leave with stuff we would never of bought 20 years ago. All made in a country we cant even find on a map if we had too. There was a time when you bought Cotten Towels, Shoes, Shirts, all U.S. MADE, you get the idea and it was made in our Great Land, its over. We need to take back that part of our work force, it was US, we need it. Go to any big city, small city and ask the people where there working? If there young there not and really dont think about tommorow...( thay better start its here ). And the older people of my age are now working ( because they know the value of a dollar ). Where are thay working? Wal-Mart, Sams Club, Target, ect...We have got to stop all these American Companys from shipping jobs overseas because its cheaper labor. If the companys came back to there roots we the People would not only Buy, but have Jobs and feel good about that old forgotten LABEL made in the U.S.A. And that keeps us in our homes, and Proud.
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It's bowl time. Here's how some football student-athletes are making waves in the classroom, even during the busiest time of the season.
Cars that make the most economic sense — not just when you sign on the dotted line, but for years after.
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