Foreclosure Articles
Indiana Foreclosure & Real Estate News -High default rates require community response
By Drew Klacik and Seth Payton
The housing bust is causing unprecedented levels of mortgage defaults and foreclosures across the nation. And with one of the highest mortgage default rates, Indiana hasn't escaped the trend. Data from foreclosure.com show that foreclosures in Indiana grew consistently from 2002 through 2005. They were concentrated in Central Indiana and other urban areas such as Gary, South Bend and Fort Wayne. Marion and surrounding counties experienced the greatest number of foreclosures.
Many factors contribute to the state's high foreclosure rate. Areas with the highest numbers of foreclosures contain some of the lowest-income households and a high percentage of people spending a significant share of their income on housing.
Certainly, foreclosure concentrations also exist in higher-income areas. An initial evaluation shows there may be a correlation between excessive housing supply and foreclosures.
In Central Indiana, there has been a fairly rapid increase in U.S. Department of Housing and Urban Development-owned homes. A majority of foreclosed homes built after 1990 were HUD-owned rather than bank-owned.
Neighborhoods with the highest concentration of foreclosures were in markets where the likelihood of selling a listed property was lower, the homes were sold at lower prices and appreciation was slower.
Those neighborhoods also have a greater proportion of abandoned properties. Though it is difficult to isolate a single neighborhood demographic directly linked to foreclosures across the state, we should target policy efforts to areas with high concentrations.
Homeowners who enter the foreclosure process pay a high price emotionally and financially. The costs also spread to lenders and surrounding neighborhoods.
Using a statistical modeling technique, the Center for Urban Policy and the Environment estimated the effect of foreclosures on housing values in Marion County in 2004. The study found that foreclosed properties sell at margins of 26 to 29 percent less than non-foreclosed properties.
When foreclosed properties are concentrated in a particular area and used as comparable prices for future listings, this "foreclosure discount" may have a negative impact on the value of other homes in the area.
The average house in the average neighborhood experienced a 4-percent decline in value due to foreclosures. Total decline in housing stock prices across Marion County due to foreclosures was an estimated 9 percent
The cost of foreclosures justifies collective efforts to address the problem. The focus is to develop counseling programs to assist defaulting households with credit negotiations and direct cash assistance. These efforts will be needed for the foreseeable future.
Additional research is needed to develop policies to reduce the number of households going through foreclosure. If proactive intervention is successful, we can slow the number of households experiencing foreclosure, reduce the emotional and financial costs, and restore stable housing price growth to Indiana's markets.
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