You might suppose, now that the economy has been officially in rececssion for nearly 18 months, that we would start to see very high foreclosure rates in states heavily hit by unemployment. But if you supposed that, you would be wrong. The April 2009 foreclosure statistics from RealtyTrac, show that foreclosures are still heavily concentrated in the four “sand states,” California, Nevada, Arizona and Florida. Together they account for 193,659 of the 342,038 foreclosure filings in the United States, 57% of the total. At the opposite extreme are Vermont and South Dakota, where there were 2 and 17 foreclosure filings in April (those are whole numbers, not percentages). No other state has more foreclosure filings than each of the four sand states; the next highest is Illinois with 13,647.
You can see the national imbalance most vividly by measuring the number of foreclosure filings per 10,000 houses. The table shows the states exceeding the national average of 27 and lists the total number of foreclosure filings in each plus the March 2009 state unemployment rate:
USA 27 342,038 8.5
Nevada 147 16,266 10.4
Florida 74 64,588 9.7
California 72 96,560 11.2
Arizona 61 16,245 7.8
Idaho 39 2,478 7.0
Utah 32 2,969 5.2
Georgia 29 11,521 9.2
Note that the correlation of foreclosures and unemployment rate is pretty low; California has high unemployment and lots of foreclosures, but Arizona which also has lots of foreclosures has an unemployment rate below the national average, as do Idaho and Utah, the latter of which has one of the lowest unemployment rates in the nation.
You can also see the low level of correlation by looking at the same numbers for the states with the highest unemployment rates.
USA 27 342,038 8.5
Michigan 24 10,830 12.6
Oregon 24 3,837 12.1
South Carolina 11 2,309 11.4
California 72 96,560 11.2
North Carolina 7 3,082 10.8
Rhode Island 12 556 10.5
Nevada 147 16,266 10.4
Indiana 18 5,019 10.0
Kentucky 5 891 9.8
Unemployment is producing foreclosure rates at about the national average in Michigan and Oregon (and in Illinois and Ohio, which don’t quite make the chart, as well) and below the national average in South Carolina, North Carolina, Rhode Island, Indiana and Kentucky. This is true in negative population growth states like Michigan and Rhode Island as well as rapid population growth states like the Carolinas.
So what is going on here. The Pew Research Center has collected and analyzed interesting data on minorities and immigrants and home ownership, focusing on the county level. Concluding paragraphs:
Of the several demographic attributes included in the analysis, the immigrant share of the county population is the one that emerges as the most important correlate with the foreclosure rate. And within the immigrant population, the share of foreign-born Latinos stands out as a more notable influence than the share of non-Hispanic immigrants (Appendix Table A5). This may mean exactly what it appears to be—the foreclosure rate among the immigrant population, especially immigrant Latinos, is higher than average.
However, it is also possible that the presence of immigrants serves merely as a stand-in for underlying circumstances not otherwise captured in the data. In recent years, the construction boom attracted immigrants in large numbers into new settlements in the U.S. (Kochhar, Suro and Tafoya, 2005; Frey, Berube, Singer and Wilson, 2009) Many of these areas, such as those surrounding Las Vegas and Atlanta are now witnessing sharp reversals in construction and high rates of foreclosures. The increased presence of immigrants in an area may simply signal the effects of a boom-and-bust cycle that has raised foreclosure rates for all residents there. Thus, it is not possible to affirm that immigration levels in and of themselves raise foreclosure rates.
The Pew analysts are careful not to go farther than the data takes them, but it’s hard to resist the conclusion that foreclosures are heavily concentrated among Latino immigrants.
That conclusion receives further corroboration from this nifty New York Times interactive map of foreclosures in the New York metro area. Click on any census tract and you can find the foreclosure rate and the “non-white” percentage of the population. It becomes immediately obvious to anyone who knows the local demographics that foreclosures are heavily concentrated in Latino and black neighborhoods. For example, the foreclosure rate is 12.5% (presumably that’s equivalent to 1250 per 10,000 houses) in one census tract in the heavily Latino Bushwick neighborhood in Brooklyn—a level that’s probably as high as some of the most distressed neighborhoods in Las Vegas. By way of comparison, click on one of the heavily Chinese and Korean census tracts in Flushing, Queens, and you’ll find foreclosure rates below 1%.
The accompanying Times story tries to make the case that this is the result of heartless exploitation of helpless minorities by greedy operators. The truth seems to be that a lot of mortgages were granted to people who turned out not to be creditworthy in a situation where both lenders and borrowers assumed that housing prices would continue to rise. The granting of such mortgages was encouraged by Fannie Mae and Freddie Mac, which promised to take them off lenders’ hands and then between 2004 and 2007 injected $1 trillion of what turned out to be toxic paper into financial institutions all over the world; as my American Enterprise colleague Peter Wallison has explained, this was not the result of deregulation but of bad government regulation.
In this situation even a slight downturn in a local economy (gambling revenues started declining in Las Vegas in 2007) could produce a cascade effect, as local construction jobs vanished and construction workers suddenly couldn’t make monthly payments on mortgages which suddenly exceeded the value of their houses. The cascade was greatest in areas with recent population growth and economies therefore unusually dependent on the construction industry—Las Vegas, Phoenix, the Inland Empire and Central Valley of California, Miami and Orlando—with similar effects in parts of metro New York. Mortgage refinancing programs are not much help in these situations. The lending model which produced the problem is now presumably defunct; Fannie and Freddie are no longer pumping toxic waste into the system but are rather bleeding billions at taxpayers’ expense.
