Middle Tennessee - Rutherford County TN - Residential Home Sales Market Statistics: A Comparison of Normal Sales versus Short Sales and Foreclosures in August 2009

According to the data I researched in the Middle Tennessee MLS (RealTracs) as of 9/1/2009, the following Market Statistics paint a troubling picture for the 3 main cities/towns in Rutherford County Tennessee:

Active Listings

• Murfreesboro TN -109 out of 1,322 Active Listings (or 8.25%) are shown as Short Sale or Foreclosure listings.
• Smyrna TN - 51 out of 389 Active Listings (or 13.11%) are shown as Short Sale or Foreclosure listings.
• LaVergne (or La Vergne) TN - 59 out of 291 Active Listings (or 20.27%) are shown as Short Sale or Foreclosure listings.

Pending Sales

• Murfreesboro TN -32 out of 242 Pending Sales (or 13.22%) are shown as Short Sale or Foreclosure listings.
• Smyrna TN - 11 out of 60 Pending Sales (or 18.33%) are shown as Short Sale or Foreclosure listings.
• LaVergne (or La Vergne) TN - 29 out of 61 Pending Sales (or 47.54%) are shown as Short Sale or Foreclosure listings.

As you can see in all the towns above the % of Short Sales and Foreclosures is high for both Active Listings and Pending Sales. However, the worst part is that when looked at as a percentage of Pending Sales the Short Sale and Foreclosure share of Pending Sales is relatively high when compared to percentage of Active Listings to the tune of 50%+. This means that regular (i.e. non Short Sale and Foreclosure) listings will have a difficult time selling as a large share of Pending Sales are lower priced distressed properties.

For Murfreesboro and Smyrna the % of Pending Sales that are Foreclosures and Short Sales remained about the same as last month, but for La Vergne the % increased from 34% to 47.54%. While the real estate markets in Murfreesboro TN and Smyrna TN are definitely hurting and prices are declining, the La Vergne real estate market is in really bad shape.

Prime Mortgages Make Up One Third of Foreclosure Actions

According to this Forbes.com article, Prime Mortgages Are Failing, between April and June of 2009 13% of all homeowners in the United States were either behind on their mortgage payments, or in foreclosure. If that is not bad enough news, the article goes on to state that while subprime (sub prime) ARM loan defaults decreased, the decrease was offset by large a large increase in the number of delinquent prime mortgages (that is mortgages to the most credit worthy borrowers who actually invested down payments, had verifiable jobs and excellent credit). The article quotes Jay Brinkmann, chief economist of the Mortgage Bankers Association (MBA), as stating "Prime fixed-rate loans now account for one in three foreclosure starts. A year ago they accounted for one in five. While 41 states had increases in the foreclosure start rate for prime fixed-rate loans, 43 states had decreases in that rate for subprime (sub prime) adjustable-rate loans." According to the article, the MBA defines delinquencies as those between 30 and 90 days past due. Homeowners beyond 90 days past due, or in foreclosure, are identified as seriously delinquent. The article blames increasing unemployment and declining property values (think underwater homeowners) as the main causes of this huge increase in prime mortgage foreclosure starts. According to the article, California, Florida, Arizona and Nevada continue to make up the largest % of foreclosures, but that % has decreased from 46% in the 1st quarter of 2009 to 44% in the 2nd quarter of 2009. The article states that Florida is in particularly bad shape with 12% of mortgages in the process of foreclosure, and at least 22.8% are delinquent. Also, according to the article, there was a major jump in Federal Housing Authority (FHA) foreclosures.

Here is my synopsis of the real estate market based on the information above and other information.

• The most financially responsible borrowers (prime mortgagors) are hurting. Even large down payments are not enough to counter the huge price declines. More homeowners underwater = more foreclosures.
• Foreclosures are increasing in general. This will cause more price declines.
• While the "Fab 4" (California, Florida, Arizona and Nevada) are still the kingdoms of foreclosure and prices will surely continue to fall in those markets, the decrease in % of total foreclosures nationwide from 46% to 44% while overall foreclosures increased means that foreclosures in other states increased at a higher pace that the "Fab 4" states. This means prices will decline nearly everywhere.
• More distressed homeowners will cause more people to try to rent out their homes. Until prices decline to a point where monthly rents exceed total monthly housing payments prices will continue to decline. Rampant foreclosures will make sure prices actually head below this normal equilibrium.
• Government meddling (expanded FHA mortgages, tax credits, etc.) has not and will not work to save the real estate market. The market is correcting itself to sustainable levels. FHA mortgages are now failing at alarming rates. Tax payers will once again have to foot the bill for regulatory incompetence. It seems that very few people are stating the truth about the real estate market. That is that high housing prices are bad for people (especially lower income people) and high commercial real estate prices are bad for business, which is in turn bad for job growth. Also, real estate has never (until the last few years) been the driver of the economic bus. It has been the passenger, meaning that economic growth (and the resultant business, job and income growth) caused housing prices to increase and new construction to increase. Not the other way around. Any attempt to work in reverse logic = insanity.

Please be clear about my opinion. "The worst is yet to come." I have been saying this since early 2006 and I see no reason to change my outlook on the housing and commercial real estate markets.

TransUnion.com: Mortgage Loan Delinquency Rates Rise

According to this TransUnion News Release, TransUnion.com: Mortgage Loan Delinquency Rates Rise - But Pace Is Slowing, mortgage delinquencies (the % of borrowers that are 60 or more days past due) increased for the 10th straight quarter reaching an all-time high national average of 5.81% for the 2nd quarter of 2009, which is an 11.3% increase over the 1st quarter's national average of 5.22%. The news release goes on to say that the "good news" is that this increase is less than the almost 16% that occurred from the 4th quarter of 2009 to the 1st quarter of 2009. Of course the news release goes on to state that year over year mortgage loan delinquencies increased a staggering 65%.

The Analysis section of the release reads "In its first quarter analysis, TransUnion reported a potential positive sign in mortgage delinquency rate trends. For the first time since the recession began at the end of 2007, the quarter-to-quarter growth rate for national mortgage delinquency showed a decrease," said FJ Guarrera, vice president of TransUnion's financial services division. "Now, with the release of second quarter results, we see even more deceleration in mortgage delinquency, an indication that the mortgage market is beginning to stabilize." "There are several complementary economic statistics at the national level to support this guarded optimism, such as the increase in consumer confidence in the second quarter. As for the labor market, although unemployment had continued to rise through the second quarter, July figures for unemployment insurance were lower than expected. Furthermore, recent figures from the government show the unemployment rate actually dipping to 9.4 percent nationally in July. These encouraging economic signs, coupled with a decrease in the rate of mortgage delinquency growth, suggest that we may have seen the worst of the recession. This is particularly noteworthy, in that delinquency statistics are generally lagging indicators of the economic environment," continued Guarrera.

The news release continues by stating that they project that the average mortgage loan delinquency rate will peak at just under 7% by the end of the year. The release goes on by stating However, due to a continued downward trend in housing prices throughout the year as well as high unemployment levels, TransUnion does not see national delinquency rates beginning to fall until the first half of 2010.

Frankly, I find TransUnion's rosy views comical. First, unemployment only fell to 9.4% in July due to nearly 500,000 being removed from the unemployment figures not because they found a job, but because they UNEMPLOYED TOO LONG! Also, there is no way that the mortgage loan delinquencies have turned a corner. With unemployment continuing to rise, increasing numbers of homeowners owing more than their homes are worth (i.e. underwater homeowners) and the wave of ARM mortgages coming due in May 2010 you can absolutely bank on increasing foreclosures and short sales. There is just no way around it. The bottom is something we have yet to see.

RealtyTrac: U.S. Foreclosure Activity Up 32% from July 2008 and 7% from June 2009

According to this RealtyTrac press release, U.S. FORECLOSURE ACTIVITY INCREASES 7 PERCENT IN JULY, in July 2009 US foreclosures increased by 32% from July 2008 and by 7% from June 2009. According to the press release, July is the 3rd time in the last 5 months that a new record has been set for foreclosure activity. Again, the 4 hardest hit states were Nevada, California, Arizona and Florida. However, there were a many other notable problem areas with Utah at #5, Idaho at #6, Georgia at #7, Illinois at #8, and Colorado at #9. Tennessee ranked 22nd (worse than average), while Pennsylvania, a more stable area, ranked 34th (better than average). A complete list of the July 2009 state by state foreclosure rankings are below (courtesy of RealtyTrac):

U.S. Foreclosure Market Data by State – July 2009

		Properties with Foreclosure Filings
Rate Rank	State Name	NOD	LIS	NTS	NFS	REO	Total	1/every X HU (rate)	%? from Jun 09	%? from Jul 08
--	U.S.	62,939	71,565	104,830	33,557	87,258	360,149	355	6.74	32.32
33	Alabama	0	0	1,630	0	452	2,082	1,026	-23.34	141.25*
24	Alaska	3	0	266	0	102	371	761	76.67	79.23
3	Arizona	2	0	14,120	0	5,572	19,694	135	16.99	47.52
21	Arkansas	104	0	1,319	0	828	2,251	572	35.03*	110.77*
2	California	50,917	0	35,802	0	21,385	108,104	123	6.99	49.55
9	Colorado	5	0	3,947	0	1,536	5,488	388	-4.12	2.08
29	Connecticut	0	1,084	0	190	295	1,569	917	7.84	-22.10
37	Delaware	0	0	0	226	72	298	1304	-12.61	125.76
	District of Columbia	267	0	219	0	35	521	546	24.94	-6.80
4	Florida	0	35,227	0	14,502	6,757	56,486	154	6.78	23.11
7	Georgia	1	0	7,616	0	3,519	11,136	356	-20.59	10.68
15	Hawaii	186	0	481	0	323	990	512	40.23	332.31
6	Idaho	1,290	0	1,051	0	150	2,491	253	32.43*	166.13*
8	Illinois	0	6,770	0	4,060	3,694	14,524	361	34.53	62.92
17	Indiana	0	1,015	0	1,881	2,290	5,186	536	-6.86	8.43
43	Iowa	0	0	227	0	374	601	2,212	7.32	20.68
30	Kansas	0	183	0	408	728	1,319	925	37.68	94.83
39	Kentucky	0	405	0	488	341	1,234	1,545	9.30	0.65
40	Louisiana	0	6	0	928	183	1,117	1,664	-23.07	9.83
41	Maine	0	138	0	212	57	407	1,712	39.38	59.61
11	Maryland	0	3,521	0	633	998	5,152	450	66.19	65.98
16	Massachusetts	0	3,548	0	1,049	517	5,114	532	58.77	43.09
19	Michigan	1	0	2,695	0	5,561	8,257	548	-39.32	-28.76
20	Minnesota	12	0	2,266	0	1,847	4,125	559	23.80	146.86
45	Mississippi	0	0	354	0	124	478	2,625	-36.69	151.58*
27	Missouri	5	0	1,729	0	1,441	3,175	834	2.02	-9.60†
47	Montana	0	0	2	0	88	90	4,839	45.16	-36.62
46	Nebraska	0	164	0	5	26	195	4,004	30.87	-70.45
1	Nevada	7,139	0	7,833	0	4,563	19,535	56	4.11	94.18
31	New Hampshire	0	0	611	0	12	623	954	42.24	-31.01
18	New Jersey	0	4,210	0	1,505	752	6,467	541	49.25	39.92
32	New Mexico	0	479	0	270	128	877	983	23.52	61.21*
38	New York	0	4,613	0	871	470	5,954	1,334	22.76	-3.45
36	North Carolina	1,120	0	756	0	1,552	3,428	1,203	7.97	-20.33
48	North Dakota	0	1	0	26	23	50	6,211	56.25	-23.08
12	Ohio	0	5,062	0	3,032	2,927	11,021	460	-2.05	-18.10
35	Oklahoma	595	0	522	0	420	1,537	1,056	18.69	-11.05
10	Oregon	29	0	2,463	0	1,113	3,605	446	15.80	84.40
34	Pennsylvania	0	1,869	0	1,805	1,642	5,316	1,030	7.59	27.36*
28	Rhode Island	0	0	17	0	488	505	893	-44.63	2.23
26	South Carolina	0	1,209	0	484	735	2,428	833	44.01	82.15*
42	South Dakota	0	60	0	56	48	164	2,178	45.13	446.67*
22	Tennessee	0	0	2,263	0	2,309	4,572	596	-2.20	0.15††
25	Texas	24	0	7,194	0	4,859	12,077	781	0.45	16.64
5	Utah	1,234	0	1,728	0	732	3,694	250	6.42	93.30
50	Vermont	0	0	0	0	11	11	28,312	0.00	120.00
14	Virginia	5	0	3,927	0	2,474	6,406	511	23.48	11.51†
13	Washington	0	0	3,632	0	1,738	5,370	511	14.79	94.42*
49	West Virginia	0	0	119	0	20	139	6,350	21.93	265.79
23	Wisconsin	0	2,001	0	926	890	3,817	671	8.10	86.74*
44	Wyoming	0	0	41	0	57	98	2,473	16.67	-26.32

* Actual increase may not be as high due to data collection changes or improvements
† Collection of some records previously classified as NOD in this state was discontinued starting in January 2009
† Collection of some records previously classified as NOD in this state was discontinued starting in September 2008

U.S. Foreclosure Rates Heat Map – July 2009

A US Foreclosure Rates Heat Map for July 2009 is below (courtesy of RealtyTrac). As you can see, many counties in Tennessee experienced high rates of foreclosure activity in July 2009. Although the map is small (and difficult to tell for sure), it appears that some of the hardest hit counties are Davidson, Williamson and Rutherford. Rutherford County TN appears to have one of the highest foreclosure rates in the entire the state of Tennessee.

After the RealtyTrac press release was issued, a Bloomberg article, U.S. Foreclosure Filings Set Third Record-High in Five Months, obtained additional information from the following real estate sources and experts.

• National Association of REALTORS (NAR) - The median price of an existing single-family house dropped 15.6 percent to $174,100 in the second quarter of 2009, the most in records dating to 1979.
• Zillow - Almost one-quarter of U.S. mortgage holders are now underwater (i.e. they owe more in mortgage debt than their homes are worth).
• Stuart Gabriel (director of the UCLA Ziman Center for Real Estate in Los Angeles) - “There are a slew of factors showing fundamental weakness on the demand side: tighter underwriting, job loss, investors who’ve been badly burned. We have not seen the bottom of the housing market.”
• Diane Swonk (chief economist at Chicago-based Mesirow Financial Inc.) - “We’re in a deep hole. There is a whole new wave of foreclosures tied to the cyclical dynamics of the economy. It has been more profitable to put a home in foreclosure than restructure the loan. The only thing that helps is forgiveness of principal, and there is little willingness to do that.”

The information above from RealtyTrac and the additional information and quotes are all proof that what I said several months ago is true: "The worst is yet to come." The real estate market is still declining and will actually accelerate downward starting in the summer of 2010. The major issues that will continue to harm the real estate market are as follows:

• Continued job losses.
• More and more homeowners underwater.
• Massive government debt which will result in higher interest rates.

There is no way to escape what is coming. All the events that will cause the impending declines have already happened.