The beneficiaries of taxpayer charity will be highly concentrated in just five states — California, Nevada, Arizona, Florida and Michigan. That is not because the subsidized homeowners are poor (Californians with $700,000 mortgages are not poor), but because they took on too much debt, often by refinancing in risky ways to “cash out” thousands more than the original loan. Nearly all subprime loans were for refinancing, not buying a home.
It turns out that the five states with by far the highest foreclosure rates have some things in common with each other, but very little in common with most other states.
I studied the latest available figures for state foreclosure rates, changes in home prices over one and five years, existing home sales, the percentage of mortgages that are underwater, and unemployment. Then I compared figures for the five most foreclosure‐prone states with New York and also with the 25th‐ranking (median) state.
One out of 76 homes in Nevada went into foreclosure in January, for example, compared with one out of 173 in California, with Arizona and Florida close behind. In New York, by contrast, only 1 out of 2,271 homes went into foreclosure.
Nationwide, foreclosures fell 10% in January, to one out of every 466 homes. But that is a “mean” average dominated by places like California and Florida. In the median state with the 25th highest foreclosure rate, by contrast, only one out of 949 homes was in foreclosure — just one‐tenth of 1%. Foreclosure rates were even lower in 25 other states. In Vermont, foreclosures amounted to just one out of 51,906 homes. Foreclosure can be a personal crisis, but it is not a national crisis.
Now consider the change in home prices between the third quarters of 2007 and 2008, using the OFHEO price index — the only measure available by state. Like most of the new mortgage‐relief plan, the OFHEO index covers mortgages that qualified for Fannie and Freddie financing. It excludes jumbo mortgages larger than $729,750 in high‐cost areas like New York City.
As of the third quarter of 2008, OFHEO home prices were still higher than a year before in 18 states, and down less than 2% in a dozen others. Double‐digit declines in home prices were confined to just four states — surprise, every one of the Foreclosure Five except Michigan.