Another Wave of Foreclosures Coming

Here’s the thing about waves. If the first wave brings you to your knees, the second one doesn’t have to be a tsunami to finish you off.

My friends in real estate — not just in DeKalb, btw — have been working exclusively on short sales for at least a year with no end in sight. Now comes word that millions are still falling behind on house payments and potentially headed for foreclosure.

About 5 million to 7 million properties are potentially eligible for foreclosure but have not yet been repossessed and put up for sale. Some economists project it could take nearly three years before all these homes have been put on the market and purchased by new owners.

And the number of pending foreclosures could grow much bigger over the coming year as more distressed borrowers become delinquent and then, if they can’t obtain mortgage relief, wade through the foreclosure process, which often takes more than a year to complete.

The first wave took out the subprime borrowers but the next one will be about people with good credit and good loans who have become un- or under-employed — last I checked, we haven’t exactly been adding jobs like crazy.

Next, let’s look at the local foreclosure picture and the aldermen-Judases.

According to RealtyTrac, there are currently 153 bank-owned properties and 152 homes in pre-foreclosure within the 60115 area code. Another 50-60 are up for auction. So, that’s 350 properties already pulling down their neighbors’ property values, plus some unknown number of financially-distressed homeowners who are not yet a blip on the radar screen but will be.

The situation has a number of implications, but first and foremost is the trend for tax revenues of all kinds to continue to drop for several years. Right now it is extremely unwise to borrow any money that has to be guaranteed with said tax revenues and most especially property taxes. The City of DeKalb’s plan to issue general obligation bonds for the $12 million it wants for downtown beautification is, therefore, a disaster in the making.

Some might disagree with this assessment. Let me remind you, then, that the predictions made by members (like me) of the DeKalb Naysayers of Dooom Club over the past 2+ years, in regards to the city’s financial mess, have come true. The city’s have not. In my world, if the Naysayers of Dooom say “batten down the hatches,” we batten.

City Council has a couple of clueless buffoons on it, a couple new members who simply aren’t up to speed, and a couple others who know the score and are either selling us out or simply don’t have the ‘nads to stand up to the ReNew crowd. I won’t call out anyone in particular today because the reasons for Council’s not living up to its fiduciary responsibilities are pretty much academic at this point.

As for the cure, it’s one that only a crowd of a thousand on the doorstep of city hall could administer.

5 thoughts on “Another Wave of Foreclosures Coming”

  1. The next wave down will likely be in commercial real estate. The loans for this are generally only about 5 years in duration, and as the bottom started falling out in 2007, we will start seeing more and more empty store fronts. When people stop paying their residential mortgages, they get a temporary increase of income for spending at stores, but after a year or so they are evicted, and this ceases. The major employer in the area has had a wage/salary freeze in effect for several years now, and many private sector people are either unemployed or under-employed. The state and local governments are all seemingly planning tax hikes, so that will be an effective reduction of income for most of us. Our spending will correspondingly decrease. This will likely mean that less money is spent in local retail stores, which will reduce the revenues of the municipalities and the counties who are more heavily dependent on sales tax revenues. It will also impact many local banks. While most residential mortgages were sold and securitized, the commercial loans are largely still on the books of the local banks.

    Also, at the time when those local governments dependent on property taxes see their EAV drop, they will seek to increase their millage to get the same or more money out of property owners. But, when people who are supposed to be paying their taxes by escrow, stop sending in their mortgage payments, the taxes are not being paid, either. I suspect that this is going to have a significant negative impact on the revenues of entities like our school districts. It will be interesting to see what sort of revenues show up in the first installment of property taxes this year.

    What we seem to be facing is a sort of perfect financial storm. What appears to be happening is a downward spiral of individual and family incomes, which leads to reduced spending, lower property values, and consequently lower governmental revenues at the same time that social service demands increase significantly. And, it is seemingly world wide. The only way out that I can see is to create conditions for increasing the number of good paying jobs, but that is difficult under the best of conditions, and we are not likely to see those any time soon.

  2. Pevo is not having success logging in today, but shares these thoughts with us:

    As the commercial property bust approaches commercial property owners and new developers are faced with this decision. Is it cheaper to demolish the structure so I only have to pay taxes on the land and eliminate the taxes paid on he buildings? Recent examples are the Car wash on Lincoln Highway. Tear down the building so they only pay taxes on the land. There was a Hotel on Sycamore road that was tore down for the same reason and the developer of the former K Mart site is doing the same thing now. The old Johnson printing building is another example.

    So what you may say.

    Well how long will it take the owners of all the old DeKalb Clinic property to demolish the buildings so they are only paying taxes on the land and not the buildings. Is that property in the Downtown TIF and what will loosing that do to the overall TIF value in that district. The TIF is under so much stress look at the price of the revenue bonds compared to the GO bonds. The bond people are even shouting this is a much riskier project now that just a few months ago but it’s full speed ahead (even if it takes us over the cliff)

    Pevo

  3. If memory serves, DeKalb Clinic is in TIF 2, which takes care of Barb City Manor and a sidewalks-and-alleys maintenance program. But, point taken: demolitions would certainly affect the values in the district.

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