Will foreclosures crimp the housing market boom?

The national and local foreclosure market is in a state of limbo at the same that home prices and sales are increasing at a breakneck pace. But it’s a waypoint on the housing market’s landscape that’s seeing warning flags.

Tri-Cities new foreclosure filings are down, and foreclosure activity is slow-walking toward the inevitable outcome of the programs in place to help homeowners get past the economic bite of the Coronavirus. It looks like that outcome will present itself when those programs expire and the bills come due. It’s unlikely that outcome will crash the local housing market, but it may be enough to crimp some of the current boom. At the same time, it would infuse some new product into a historically low inventory.

Currently, the housing market is the only sector of the regional economy that is performing better than pre-pandemic conditions. In fact, existing home sales and prices are at all-time highs, and the new home construction is performing at a decade high.

Red Flags

During Q3, there were 64 new foreclosure filings in the Tri-Cities area, down 147 from Q3 last year. That’s also an increase of 21 filings from Q2, according to ATTOM Data solution’s quarterly U.S. Foreclosure Market Report.

CoreLogic’s most current Loan Performance Insights Report shows that the number of delinquent mortgages increased to 5.7% in the three-county Johnson City Metropolitan Statistical Area (MSA) and 6.3% in the four-county Kingsport-Bristol MSA. Last year the Johnson City MSA delinquency rate was 4.1%, and it was 4.6% in Kingsport-Bristol

The same report shows the percentage of seriously delinquent mortgages better than doubled in both of the Tri-Cities MSA. It was 2.9% in Johnson City, up from 1.2% last year, and 3.4% in Kingsport-Bristol, up from 1.3% last year.

ATTOM’s report says U.S.  foreclosure filings were down 12% from Q2 and 81% lower than a year ago. That the lowest level since ATTOM began tracking quarterly filings.

“Foreclosure activity has, for all intents and purposes, ground to a halt due to moratoria put in place by the federal, state and local governments and the mortgage forbearance program initiated by the CARES Act,” said Rick Sharga, executive vice president of RealtyTrac, an ATTOM Data company. “But it’s important to remember that the numbers we’re seeing today are artificially low, even as the number of seriously delinquent loans continues to increase, and that we’ll see a significant – and probably quite sudden – burst of foreclosure activity once these various government programs expire.”

A similar assessment comes from CoreLogic.

“Many Americans, particularly millennials, are taking advantage of low mortgage rates to either purchase their first home or upgrade their living situations,” said Frank Martell, president, and CEO of CoreLogic. “However, given the unsteadiness of the job market, many homeowners are beginning to feel the compounding pressures of unstable income and debt on personal savings buffers, creating a heightened risk of falling behind on their mortgages.”

Currently, all U.S. metro areas have logged at least a small increase in serious delinquency rates.

Jobs market struggling

The Tri-Cities labor market has regained some of the jobs lost in April and March, but it has a long way to go to get back its pre-pandemic footing. There have also been recession-related layoffs or closures at several local manufacturing. And many are waiting on pins and needles to see how much the announced Eastman Chemical reduction in global operations with be at its Tri-Cities home base.

Distressed Communities Index

Meanwhile, home prices are increasing faster than wages – which stagnated during the first half of the year. And the current Distressed Communities Index lists most of the local counties as at-risk or distressed. The index is a rating of the tiers of economic well being based on seven metrics. The most current regional assessment is:

Washington and Hawkins counties – mid-tier.

Sullivan Co. – at risk.

Greene Co.  – at risk.

Johnson Co. – distressed.

Carter Co. – distressed.

Unicoi Co. – distressed.

Washington Co. VA – at risk.

The rest of SW Va. – distressed.

Q3 foreclosure filings

Most of the local Q3 foreclosure filings were in Sullivan and Washington counties – the region’s two largest housing markets.

Q3 filings compared to Q3 last year are:

Carter Co. 6 – 10

Unicoi Co. 1 – 3

Washington Co. Tenn. – 16 – 37

Hawkins Co. – 6 – 22

Sullivan Co. – 28 – 56

Bristol Va. – 0 – 3

Scott Co. 1 – 3

Washington Co. Va. 6 – 13

Other East Tenn. MSAs Q3 filings compared to Q3 last year.

Chattanooga 38-106

Knoxville 68 – 247

Morristown 11 – 57

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