City Council members Jack Webb and Glorious Johnson should be commended for their efforts to try to find a way to somehow slow down the rising number of foreclosures here in Jacksonville. In 2007 there were more than 15,000 foreclosure filings on 9,540 properties in Duval County (many properties had second mortgages on them). That is a 39% jump from the 2006 numbers.
City Council members Jack Webb and Glorious Johnson should be commended for their efforts to try to find a way somehow to slow down the rising number of foreclosures here in Jacksonville. There were more than 15,000 foreclosure filings on 9,540 properties in 2007 here in Duval County (many properties obviously had 2nd mortgages on them). That is a 39% jump from the 2006 numbers.
Mr. Webb and Ms. Johnson are seeking to try to get an additional $100,000 from the city budget - that would add to the already approved $200,000 - for the Jacksonville Area Legal Aid (JALA). JALA executive director Michael Figgins contends this would allow the agency to hire another attorney that would be available for helping additional homeowners try to keep their homes. Unfortunately, the council members may be swimming upstream (or into a tidal wave) on this one. Things are going to get worse - much worse - in the local housing market and the fact is that an extra publicly-paid attorney is not going to be able to make that significant of a difference.
It is no secret that Florida was one of the national markets that experienced the steepest increase in housing values during the housing boom. Simple economic theory & history tell us that we have a correspondingly steep bust to go through. And we have just started our slide.
Below you will find a graphic from AIM Investments that shows the buying & selling cycles that markets go through and how investors (which homeowners are) handle these ups and downs.
On February 8th of this year, Harris Inc. took a survey for Zillow.com of 1,619 homeowners and found that 36% still believed their home has INCREASED in value, and another 41% believed their value has stayed the same. Only 23% believed their home has lost value. Looking at the chart, it is apparent that right now 36% are in the "euphoria" stage, while 41% are probably in "denial". And only 23% have progressed to "despondency" and "desperation". That spells future bad news.
This dynamic accounts for why the number of homes sold here in Florida has dropped dramatically (many would-be home-sellers are in denial about the true market price of their home), but the home prices - while having dropped - haven't dropped as much as one would have expected from all of the negative press. U.S. Treasury Secretary summed it up best three weeks ago when he testified before Congress and said that the "worst is just beginning" for the housing market crash. Most analysts believe home values still have at least another 15-20% to fall before things start to level out.
What will be driving this increase in foreclosures and further decrease in real estate values? It is well-documented that we are going to have an increasing number of adjustable rate mortgages (ARMs) re-setting over the next two years. Check out the "Map of Misery" from BusinessWeek.com to see how our area ranks with the rest of the country on this statistic.
Additionally, it is now a well-documented phenomenon (just visit www.patrick.net) that many homeowners are WILLINGLY CHOOSING foreclosure as they see the dwindling of their home equity. For them, it has become a business decision. This trend will only get worse over the next two years.
So what should be done to address the problem here locally? Well, we have to ask the serious question if it is the job of government to undo the mistakes of its citizens. Granted, there are undeniably some homeowners out there who may have been duped in some way by their mortgage broker or lender. Those who lent the money just to make a quick dollar should be investigated and prosecuted. And the victims of these "predatory lenders" should be helped in as much capacity as possible. Locally, we agree that victim advocate agencies such as JALA are the best resources for homeowners in this situation, but feel that it may be in the best interest of citizen tax dollars to limit any assistance beyond these types of situations.
But those cases are probably the exception rather than the rule in this unprecedented sea of foreclosure madness. Likely much more common is the homeowner who is now facing foreclosure and was only allowed to buy a home because of extraordinarily relaxed policies by loan underwriters (that and low interest rates). In many of these cases, the homeowners were required to put very little to nothing down and therefore have very little at stake in the home. So where does the blame belong for these cases? While certainly the lenders should carry some of the blame, at some point the individual mortgage applicant should have taken stock of their personal financial situation before signing the mortgage note and made sure they were aware of what they were signing up for. Additionally, the question needs to be asked if we bail these people out now - when things are just beginning to get bad - how do we expect them to stay afloat as things get worse over the next year or two?
It should be noted that there are also many speculators and real estate investors (Cameron Kuhn is the most highly-profiled local example) who are also filling the ranks of the foreclosed upon. A bail-out of any kind for these investors - or the banks that lent to them - is simply unconscionable.
In short, we are suggesting that there is no quick solution to this problem. This is a royal mess in our economy that will require time to work itself out - just as other problems have in our past. Even the consequences of federal government involvement should be seriously considered before acted upon. We shouldn't be capitalists only up until the point that it starts to hurt a little because we made bad business decisions.
Getting back to the situation here in Jacksonville, JALA Director, Mr. Figgins says that "JALA is probably the solution to the [foreclosure] problem" in Duval County. While we salute him for championing for more funding for his agency, we respectfully submit that the scope of the coming problems may be much larger than he and Council Members Johnson and Webb currently realize or will be able to address.