While Portlanders continue to be plagued by home foreclosures, the number of distressed homeowners is spiking even faster in the suburbs these days.
Foreclosure actions filed against homeowners in upscale Lake Oswego mushroomed 20 percent the first six months of this year, compared with the same period last year, and rose 10 percent in jobs-rich Hillsboro, according to RealtyTrac Inc., an Irvine, Calif., real estate data services company. RealtyTrac counted nearly 300 Lake Oswego properties socked with foreclosure actions from January through June and more than 500 Hillsboro properties.
Foreclosures also shot up at a rate faster than Portland in suburban Oregon City, Milwaukie, Tigard, Tualatin, Sherwood and St. Helens.
“The foreclosure activity that is occurring in suburban markets in Oregon is unprecedented,” says Tom Cusack, a retired federal housing manager in Portland who continues to track the issue via his Oregon Housing Blog. “It’s affecting not just rural areas, not just inner-city neighborhoods, but suburban neighborhoods, probably more substantially than any time in the past,” Cusack says.
From January through June, foreclosure filings grew 6.5 percent in the city of Portland, compared with a year earlier, and 8.5 percent in Portland suburbs, not counting Clark County, according to RealtyTrac data.
In 10 different local ZIP codes — three in Portland and seven in the suburbs — foreclosure actions were filed against more than 2 percent of all properties the first six months of 2010.
Dominating local market
Realtors say a record number of foreclosures dominates the area housing market, depressing home prices but also attracting bargain-hunters looking for distressed properties.
“Either you’re helping people get into them or helping get out of them,” says Fred Stewart, a Northeast Portland Realtor who operates a website listing foreclosed homes for sale in Multnomah County.
Distressed properties account for “40 percent of the business right now,” says Dale Kuhn, principal broker for John L. Scott Real Estate in Lake Oswego.
Every suburb is a unique real estate market, so it’s hard to generalize why some are experiencing more foreclosures now than before. In West Linn, for example, foreclosure filings were down the first six months of the year compared to a year earlier, while things are going in a different direction in its affluent neighbor to the north, Lake Oswego.
One factor could be that many borrowers of modest means took out subprime loans, which were the first to go through foreclosure when those loans “exploded” and reset to much-higher interest rates. Working-class neighborhoods had the highest foreclosure rates in the early months of the Great Recession.
“They got hit the hardest first,” says Rick Skaggs, a real estate broker at John L. Scott in Forest Grove.
In the Portland area, an unusually high number of middle-class and affluent borrowers took out interest-only loans and Option ARM or negative-amortization loans. Option ARMs (adjustable rate mortgages) allowed the borrower to pay a minimum monthly mortgage payment — akin to a credit card minimum payment — while tacking more principal onto the loan. Option ARMs and other alternative loans took longer to unravel than subprime loans, and many are now winding up in foreclosure. And those mortgages were more common for more expensive properties.
They were ticking time bombs, like subprime loans, but they had longer fuses, says Angela Martin, of the Portland public interest group Our Oregon.
Stewart offers another reason for the surge in suburban foreclosures. He’s noticing a larger pool of buyers now for closer-in Portland neighborhoods, as people seek to avoid long commutes. People selling distressed properties in Northeast and Southeast Portland have more options to sell than someone saddled with an unaffordable mortgage in a suburb, Stewart says.
Recent state and national statistics also reveal a counterintuitive trend — affluent homeowners are going into foreclosure lately at a higher rate than others.
Cusack recently analyzed data for Oregonians who took out traditional 30-year Federal Housing Administration loans since mid-2008. He found that the greater the loan amount, the greater the chances those became problem loans.
“The default rate and the seriously delinquent rate were higher for higher-income loans,” Cusack says.
Business owners and other affluent homebuyers who settled in suburban markets also had more resources available to hold onto their homes than lower-income homeowners, at least during the earlier stages of the Great Recession. That may explain why places such as Lake Oswego are seeing such an upsurge in foreclosures now.
“If you paid a half-million for anything in Lake Oswego in 2007, you’re ‘under water,’ ” Stewart says. That’s the term for people who owe more on their mortgage than their home is worth.
Portland bankruptcy attorney Ann Chapman, of the firm Vanden Bos & Chapman, is seeing an uptick in affluent clients coming to her office.
They had been turning to pensions, savings and family money to hold onto their homes and businesses, Chapman says. But as the economic downturn grinds on, some clients see the best option as dumping their home and filing for bankruptcy reorganization.
Affluent homeowners make a more sober assessment when they realize their homes aren’t going to be worth the mortgage amount for many years, she says. “They’re going to potentially be less emotionally involved when it comes to stopping the bleeding.”
It’s often a different story for lower-income homeowners who hope to hold onto the only homes they’ve ever had, or hope to have. “They get blinded by their optimism or their paralysis,” Chapman says.
Little relief in sight
Many Realtors say it’s a great buyer’s market now for those who have steady jobs, because interest rates are low and prices have fallen so much. But don’t expect the onslaught of Portland-area foreclosures to end any time soon.
“We are nowhere near the end if you look at the number of homeowners that will ultimately be at risk,” says Martin, citing a new study by the North Carolina-based Center for Responsible Lending. Based on that study, she figures Oregon is only halfway through the foreclosure crisis, in terms of the number of people affected by foreclosures.
Skaggs says he wishes he could be more positive, but he doesn’t see the light at the end of the tunnel. He just spoke with an investor last week who is about to walk away from five rental homes and let the bank take them back. Three of the homes are in the Beaverton area, one is in Bend and one is on the Oregon Coast.
“I probably know at least 15 people that in the next month or two are going to walk away from their homes.”