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http://www.floridarealtors.org/NewsAndEvents/n2-073007.cfm

Study: Foreclosures impact entire neighborhoodsMIAMI

– July 30, 2007 –

Mounting mortgage defaults across South Florida threaten to hurt more than just those homeowners who lose their properties to lenders.

Experts say foreclosures could drag down already sluggish housing prices throughout entire neighborhoods.

“Homeowners that are being foreclosed upon aren’t spending their Saturday afternoons mowing the yard,” said Greg McBride, a senior financial analyst at Bankrate.com in North Palm Beach. “So those people who are cutting the grass, trimming the shrubs and fixing the gutters will suffer.”

In the Tree Tops development in Wellington, where residents tend to their lots with care, one property near the entrance is in foreclosure and has been on the market for months. The vacant house has a rickety wooden fence, missing roof tiles and, until recently, a front yard full of weeds. A buyer just walked away from a $190,000 contract on the home, located about three miles west of the Mall at Wellington Green where comparable homes go for as much has $240,000.

As a result, neighbors trying to sell their wood-frame homes built in the early 1980s could have a hard time getting their asking prices, said Deanne Lee, 43, a real estate agent who lives one street from the house in foreclosure.

“It’s a scary thought,” Lee said. “I see this as just the beginning.”

In a national study published last year, two housing analysts found that for every foreclosure within one-eighth of a mile of a single-family home, property values decline by about 1 percent, and even more in dense developments. The study by Geoff Smith and Dan Immergluck is thought to be the only comprehensive look at the effect of foreclosures on property values, and is based on depressed values in Chicago in 1997 and 1998. Based on their study, the value of a typical Palm Beach County home near one property in foreclosure could drop at least $3,779. The county’s median-priced existing home in June was $377,900, according to the Florida Association of Realtors.

“One foreclosure may have a modest effect on nearby property values, but with four or five foreclosures, you’ll see a significant effect,” said Smith, director of the Woodstock Institute, a nonprofit housing group in Chicago. “You see neighborhoods start to decline.”

Smith recommends that neighbors of foreclosed homes postpone selling their own properties until the housing market improves. “But people often times don’t have that option,” he said.The numbers of homeowners defaulting on their mortgages and facing foreclosure are rising steadily across South Florida this year, according to Realestat.com, a Plantation-based company that compiles local housing statistics.

Analysts mostly blame the trouble on unconventional home loans made to risky borrowers hoping to get into houses and condominiums that shot up in value during the housing boom from 2000 to 2005.

Perfect foreclosure storm

The umber of Palm Beach County homeowners behind on their mortgage payments topped 1,000 in June, almost a fourfold increase from 259 a year ago. Actual foreclosures were flat last month. The worst is yet to come, however. Experts say foreclosure filings and late-payment notices from lenders are expected to peak this fall, leaving lenders with a glut of properties to sell by next summer.In Floral Park, a middle-class development of 40-year-old homes in suburban Lake Worth, a foreclosed house went on the market down the street from Joe Rodriguez. It sold recently for just more than $263,000.

As a result, Rodriguez is worried that he could have a hard time getting his $369,900 asking price, even though his four-bedroom corner property is bigger and includes a pool table as an incentive.

“It’s a bad sign,” Rodriguez said of foreclosures. “If the banks turn around and sell them for less, sure, it’s going to hurt [other sellers nearby.]”

Homeowners with late house payments usually are at least three months behind and have been notified that their lenders intend to foreclose. In many cases, people who secured adjustable-rate loans found they couldn’t afford the monthly payments once interest rates rose.During the housing frenzy, some of those people avoided foreclosure simply by selling the homes or refinancing. But that wasn’t as easy to do when the market slumped last year. With fewer buyers and thousands of properties for sale, cash-strapped homeowners can’t count on fast deals to bail them out of trouble.

What’s more, refinancing isn’t as easy now because home values are flat or dropping and lenders are tightening credit standards as borrowers default on home loans.Neighborhoods that stand to get hurt the most from the foreclosure crunch are newer ones with a large number of sales made near the peak of the housing boom in 2005, said Alan Hunter, a senior market analyst with Metrostudy, a West Palm Beach consulting firm.

Because lenders don’t want to be in the real estate business, they’ll likely sell those properties quickly and at a loss that will reduce home values.

“They’ll be bought by investors who will try to rent them out at a profit,” Hunter said.It’s becoming more difficult to determine whether price declines are the result of nearby foreclosures or the general decline in the housing market, real estate agents say. Regardless, the downward pressure on prices actually will be good in the long run for overpriced markets, including South Florida, said Mark Vitner, senior economist for Wachovia Securities.“It’s going to help speed up the adjustment process,” Vitner said. “More homes will get into the hands of more willing sellers – the banks or whomever. It’s a necessary thing.”

But that’s not what sellers want to hear. Re/Max agent Mark Plaxen is marketing a two-bedroom townhouse off Village Boulevard in West Palm Beach. Four months ago, the seller was asking $199,000 but has since reduced the price five times. This month it was listed at $174,900.

Plaxen just found out about another listing in the same development: a townhouse in foreclosure.“I’ll probably have to call up my seller and say, ‘It’s time to lower the price again.’”

Copyright © 2007 South Florida Sun-Sentinel, Paul Owers. Distributed by McClatchy-Tribune Information Services.