ST. LOUIS – The St. Louis Fed's Community Development department has released the latest article in its “Housing Market Perspectives – On the Level with Bill Emmons” series, in conjunction with its quarterly Housing Market Conditions report.
In the December issue, Emmons, an economist and assistant vice president with the St. Louis Fed, explores how the extended period of historically elevated rates of extreme mortgage distress and defaults in the U.S. housing market, better known as “the foreclosure crisis,” is finally nearing an end.
Although the foreclosure crisis has mostly faded from view as the U.S. economy continued its slow recovery, a deeper look at mortgage performance data from the Mortgage Bankers Association suggests that while the crisis has ended in some states, it is not quite over yet for the nation as a whole. However, the end is near, perhaps as soon as the first quarter of 2017. The condition of current mortgage borrowers considered as a group—nationwide or state by state—is once again comparable to the period just before the Great Recession and the onset of the foreclosure crisis in the fourth quarter of 2007.
“However it is defined, the mortgage foreclosure crisis will go down as one of the worst periods in our nation’s financial history. For the nation as a whole, the crisis will have lasted almost a decade—about as long as the Great Depression,” Emmons said. “The conclusion that the foreclosure crisis has been a long, miserable experience for many is unavoidable. And many Americans continue to suffer lasting financial, emotional and even physical pain as a result of their experiences during this time. However, a look at the data today shows that, at least, the end is in sight.”
Looking deeper at the regional and state levels, Emmons noted that some states and regions have experienced severe recessions and housing crises worse than the nation as a whole, while others have suffered less. This has resulted in a wide range of foreclosure-crisis experiences.
In an analysis of the data that reflects unique characteristics of particular states, a look at the states that comprise the St. Louis Fed’s Eighth District (Arkansas, Illinois, Indiana, Kentucky, Mississippi, Missouri and Tennessee) shows they all entered their respective foreclosure crises during 2008-2009, somewhat later than the nation as a whole. By the third quarter of 2016, six of the seven District states had exited their respective crises, with Illinois expected to follow by the end of 2016.
“Thus, using each state’s own history, the foreclosure crises experienced in the Eighth District were somewhat shorter than for the nation as a whole,” Emmons said. “However, a majority of District states experienced higher average rates of serious mortgage distress than the nation as a whole during recent decades, so non-crisis periods are by no means without financial pain for many District residents.” He noted that for the entire 1979-2016 period, the average serious-delinquency-plus-foreclosure-inventory rate was 2.80 percent for the U.S. as a whole. While the comparable rates were lower in Missouri (2.04 percent), Arkansas (2.49 percent) and Kentucky (2.52 percent), they were higher in Tennessee (2.81 percent), Indiana (3.29 percent), Mississippi (3.42 percent) and Illinois (3.68 percent).
“For most states in the Eighth District, the slightly shorter duration of their foreclosure crises, when measured against their own data trends, has been offset by higher average rates of serious mortgage distress seen even in non-crisis periods,” Emmons said.
“On the Level with Bill Emmons” complements the data and heat maps that are published each quarter in the Housing Market Conditions report. This report provides a snapshot of conditions in the U.S. and in the Federal Reserve's Eighth District states via:
•color-coded maps that reflect the number of mortgages considered seriously delinquent,
•color-coded maps that reflect the quarterly percent change of seriously delinquent mortgages, and
•historical house price charts based on Federal Housing Finance Agency (FHFA) and CoreLogic data.
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