Charlottesville Foreclosures Study sheds Light on a Surprisingly Hidden Market

Download the study (pdf) here.

First things first, a huge and generous thanks to everybody in Prof. Nisha Botchwey’s class at the University of Virginia School of Architecture for their efforts, and the results of said efforts. By their producing the report from which my interpretation is derived, they have done a tremendous service to the local community.

Second, theirs is a comprehensive report and the snippets I am going to highlight are not representative of the significant amount of work that they put in.

Third - and perhaps most importantly, this is the first time (that I am aware of) that this data has been pulled together in such a manner that we are able to get an accurate picture of the current state of foreclosures in the City of Charlottesville.

What does this all mean from a market standpoint? Foreclosure activity is likely to increase, but we are nowhere near the foreclosure rates and percentages of the major foreclosure hotspots - parts of Florida, Phoenix, California - which account for a majority of national foreclosures.

My analysis is focused more on the data – location of foreclosed homes, market trends, prospect for more foreclosures than on the impact on the community and what the government can do (I don’t necessarily trust government as an efficient or effective vehicle of positive change).

While their focus seems to conclude that the lower income level neighborhoods have shown the most foreclosures, my gut tells me (no, that’s not quantifiable) that foreclosures next year are going to spread in Charlottesville from the lower income areas to moderate and high income neighborhoods.

If you’re looking to buy a foreclosure, why wouldn’t you? (You can search the foreclosures listed in the Charlottesville MLS here - although part of the data problem is that many foreclosures are never listed in the MLS) Especially when rates are at historic lows – you could buy, hold for twenty years and most likely do very, very well for yourself. Not to mention that if you aren’t a slumlord, you could have a positive influence on the surrounding community.

From my position as a Buyer-Broker, my advice to my buyers would be – be well qualified and prepared to buy and consider targeting these neighborhoods; they are all very well located with great respective proximities to the University of Virginia Grounds and/or the Downtown Mall – the two major economic hubs of Charlottesville.

From an October Cavalier Daily article -

Reifenberger said the students -€™ data showed several areas in Charlottesville have been more affected than others by foreclosures. The most affected areas included Fifeville, Star Hill, Belmont, Ridge Street and the area around 10th Street and Page Street, Botchwey said.

The number of foreclosures in Charlottesville and Albemarle County spiked in February 2008 at 35, Botchwey said, and since then has seemed to decrease and then level off, with 12 foreclosuresin September 2008. Reifenberger noted that the spike may have been caused by inappropriate loan procedures and declining house values.

Quite honestly, this is the sort of data aggregation and analysis I would like to have seen from a Realtors’ group … maybe going forward we can be part of this.

From their Executive Summary:

This report provides the work collected and organized by Professor Nisha Botchwey -€™s Neighborhood Planning Workshop class in the Department of Urban and Environmental Planning at the University of Virginia. The class members partnered with the Piedmont Housing Alliance (PHA) to evaluate the impact of foreclosure on neighborhoods in Charlottesville, Virginia. More specifically, this report presents an analysis and evaluation of the current foreclosure crisis and property decay issues in the City of Charlottesville. Methods of data collection and analysis included looking at the foreclosed properties gathered from foreclosures.com, the Piedmont Housing Alliance -€™s foreclosure data, and the Daily Progress newspaper from June 2006 to September 2008. This data was analyzed according to demographics, time, finances, and housing quality. Students then researched case studies of successful responses to foreclosure and translate them into the local context to develop policy recommendations.The report is divided into major themes that outline the real issues that Charlottesville needs to address:ï¶ Identifying priority areasï¶ Correlating blight and preventionï¶ Forecasting foreclosure, short and long-term responses Increasing financial literacy

As noted in the Cavalier Daily -

The second theme of correlating blight and prevention, fourth-year Architecture student Alicia Rabadan said, deals with the issue of preventing decaying properties from negatively affecting their surroundings. Rabadan explained that the motivation for this part of the project was a perception that  -€œblighted -€ properties not only damage aesthetics but also encourage further deterioration of and damage to property in the surrounding area. This in turn may lead to less community development, more crime and other issues that would reduce the quality of life in affected neighborhoods, Rabadan said.

Not to get off the topic of the importance of community building and preservation, but take note of the Broken Window theory and the debate between the Freakonomics authors and Malcolm Gladwell.

Back on track -

From Brian Mcneill’s coverage in the Daily Progress -

Bridger pointed out that 31.4 percent of adjustable-rate mortgages in Virginia are scheduled to have their rates reset in the next 12 months, increasing the possibility that struggling homeowners will fall behind and default on mortgage payments.  -We expect we’ll see more foreclosures in Charlottesville in the next year, – she said.

This number indicates at least two things – 1) Opportunity for Buyers and 2) Pain for homeowners/sellers and perhaps their neighbors.

Going forward – there are going to be conversations about updating this data throughout the year. As always, I’ll write about events and progress here. Ideally, I’d love to see this type of analysis for more than the City of Charlottesville, including Albemarle County and the other localities within the Charlottesville Metropolitan Statistical Area.

This would be a tremendous asset to the community -

After collecting this data, students created a GIS database file of all the foreclosures over the selected time period in the area. In teams students analyzed demographic and economic factors, the spread of the foreclosures over time, and the effects of foreclosure on neighborhoods and housing stock.

One note on this graph (which I noted earlier this year with equal fear) – if the rates reset downward, the fear, while justified, is lessened.

Extent of Crisis, Virginia:

The Center for Responsible Lending predicted that 62,174 homes will be foreclosed upon in 2008 and 2009 in the state of Virginia.38 In June 2008, according to the Mortgage Bankers Association, for the foreclosures in the state of Virginia, 54% of them are on subprime and Alt-A loans -non-traditional – loans while 26% of the foreclosures are on prime and government ARMs and the remaining 20% are on government and prime fixed rate loans.39 In other words, approximately 80% of the foreclosures in Virginia are by higher risk borrowers -subprime lenders and/or ARMs.

From the Real Estate Bloggers -

Top 10 Worst Metro Regions For Foreclosures in 3rd Quarter, 2008
1. Stockton, CA 3.69% of homes in foreclosure
2. Las Vegas, NV – 3.48%
3. Riverside / San Bernardino, CA 3.09%
4. Bakersfield, CA 2.58%
5. Fort Lauderdale, FL – 2.30%
6. Phoenix / Mesa AZ – 2.11%
7. Sacramento, CA 1.97%
8. Orlando, FL 1.87%
9. Fresno, CA 1.68%
10. Oakland, CA 1.64%

This from the Trulia Blog – Top 10 Hottest Foreclosure Markets

And finally, this from HotPads – which admittedly might not have the most accurate data, but it’s likely good enough to put the Charlottesville foreclosure rate in perspective.