Foreclosures up in the 'Monied Burbs' - Be Concerned

Printer-friendly versionSend to friend

Reading economic numbers is not easy in 2011. This indicator or that one may sound hopeful -- but there is always a caveat. So it is with the latest foreclosure numbers.

Nationally, the firm RealtyTrac reports foreclosures were essentially flat in January compared with December. But the caveat this time is a big one -- the numbers are flat because there is a raft of foreclosures being held back due to the robo-signing problem from last year. By the end of the quarter, says RealtyTrac's Rick Sharga, foreclosures will probably be up dramatically.

What does it all mean?

Looked at through Patchwork Nation, the foreclosure mess may be more easily understood. In the simplest terms: In January 2011 the housing problems look like a race between rising foreclosures and falling unemployment -- and the wealthy suburban areas we call the Monied Burbs hold the key for the broader U.S. economy.

Much Damage Done

As we have noted in the past on this blog and in the book "Our Patchwork Nation" wide swaths of the country have been damaged heavily in the housing mess, but a couple of places have been particularly hard hit.

The counties we call Boom Towns that experienced big growth in the first half of the last decade -- places like Riverside County, Calif. and Clark County, Nev. -- really were pummeled. In some of those places the entire local economy collapsed as construction dried up and it may take a long time before they turn around.

The big city counties we call the Industrial Metropolis also took some hard hits. And in this latest round of numbers, the Boom Towns and the Metros are still on the high end of the foreclosure troubles -- there are 1.73 and 1.65 foreclosures for every thousand homes respectively in those types of counties.

The potentially deeper problem, though, is in the Monied Burbs. Even with many of the foreclosures being held back due to the robo-signing problems (where foreclosures were pushed through with out the proper paperwork) the foreclosure numbers there rose.

In the Monied Burbs, 1.57 out of every 1,000 homes was in some state of foreclosure in January. That's up from 1.47 in December.

In recent months it has appeared that the recession is loosening its grip on the Burbs. The unemployment rate has dropped in those communities. It was down to about 8.1 percent in October of 2010 compared with 10.2 percent in January of 2010.

That was a positive sign for the U.S. economy as a whole. If the economy is to recover, the Burbs will probably have to lead the way. The 70 million people in those counties drive much of U.S. consumer spending -- and consumer spending drives the economy.

What could stall the turnaround in the Burbs? Foreclosures.

Foreclosures' Trail of Damage

To be sure, unemployment can wreak havoc on a community, but foreclosures can be even more unsettling and far-reaching. They can work like a virus. They not only leave people without homes, they usually drive down property values even for those whose homes are not in foreclosure. The net effect can be a community on edge.

Home values may not be "real money" -- they are just numbers on a sheet of paper unless one is moving -- but they can leave people feeling poorer and they can affect things like lines of credit. For most families, their home is their single biggest asset and knocking that value down can take a psychological toll.

And if foreclosures begin to infect the Burbs more deeply, they will inevitably affect spending on everything from nights out at restaurants to major purchases.

The challenge in the Burbs -- one with ramifications for the entire U.S. economy -- is getting the unemployment rate down fast enough to limit the wallop of the foreclosures. That race is on and the stakes are high.

But the bigger question is: Where are all those foreclosures that are currently being held back by paperwork going to land? No foreclosure is a good thing, but if the next wave of them lands disproportionately on the Monied Burbs then the domino effect could knock the legs out of the recovery.

Those numbers will become known in the next few months. But, looked at more broadly, RealtyTrac's Sharga says he expects 2011 to be a worse year for foreclosures than 2010 was. That's not a comforting thought.