MONEY Housing Market

The 5 Cities That Have Recovered Most—and Least—From the Recession

Some areas have rebounded nicely since the financial crisis. But many have not.

On Wednesday, the Department of Commerce announced the U.S. economy grew a healthy 4% in the second quarter of 2014. The good news aligns with other positive economic signals, like an increase in hiring, and suggests the nation as a whole might be on the road to recovery.

Unfortunately, this rosy picture hasn’t been shared equally across the United States. Some areas have recovered well, while others have struggled. A new report from personal finance social network WalletHub highlights which municipalities have made the most progress toward normalcy since the downturn, and the areas that still have a way to go. To compile the list, WalletHub analyzed 18 economic metrics for the 180 largest U.S. cities, including the inflow of college-educated workers, the rate of new business growth, unemployment rates, and home price appreciation.

Here are the results.

Most Recovered Cities

Klyde Warren Park, Dallas, Texas.
Home prices in Dallas have shot up since the crisis, bolstering the city’s economy. Trevor Kobrin—Dallas CVB

1. Laredo, Texas

Over the past seven years, this Southern Texas city’s median income has increased 5% while the population has surged 13%. State-wide bankruptcy is down, and new business growth is up.

2. Irving, Texas

Irving, sandwiched between Dallas and Fort Worth, earned high marks for rising median income (up 6% since 2007) and a decreasing ratio of part-time to full-time workers. The area has seen more college-educated workers moving in.

3. Fayetteville, North Carolina

More workers moved from part-time to full-time gigs in this city than any other place. Plus more college-educated workers are coming than going, helping the population spike over 14% since 2007.

4. Denver, Colorado

The Mile High City has seen a 12% jump in median income since the financial crisis. Most impressively, it’s one of the few areas to have seen home prices completely recover (and then some) from the housing crash.

5. Dallas, Texas

Dallas is still dealing with an increased ratio of part-time to full-time workers, but median income is up nearly 4% and home prices have appreciated a shocking 17% since the housing bubble burst.

Least Recovered Cities

Newark, New Jersey
Newark, New Jersey is still struggling to come back from the financial crisis. Flickr

1. San Bernardino, California

This Southern California city ranks as the farthest away from a full recovery. Both income and housing prices have dropped since 2007, with median income down 4%, and home prices down 43%. San Bernardino’s ratio of part-time to full-time jobs has also gone up nearly 14%.

2. Stockton, California

This Northern California inland area isn’t doing so well either. Incomes are down. Home prices have severely depreciated (down more than 43% from seven years ago), and the foreclosure rate is close to 18%.

3. Boise City, Indiana

Residents of Boise City have suffered an 8% drop in their median income since the crisis. Despite there being increasingly more full-time work opportunities, relative to part-time roles, new business growth remains far below its pre-recession level, down roughly 11%.

4. Newark, New Jersey

The median income remains down almost 5% in this urban area, adjacent to New York. Homes have been hit hard too. Housing prices are about 41% lower than they were in 2007.

5. Modesto, California

This town, which neighbors depressed Stockton, also hasn’t been able to break out of its post recession funk, likely because home prices remain down about 35%, and new business growth almost 9%.

MONEY mortgages

Behind on Your Mortgage? You May Be Eligible For Some Help

A new settlement with one of the nation's largest lenders may provide you with some much needed help on your mortgage.

The $540 million SunTrust Mortgage agreed to pay last week in relief to distressed homeowners is the latest in a series of settlements authorities have reached with major banks over their role in the financial crisis since 2012. Is it too late to claim any of that money? Here’s what you need to know.

Who is eligible for a loan modification?

If you’re underwater, or struggling to make your payments, two lenders have relief funds remaining under their settlement agreements. Ocwen Financial agreed in December to spend $2 billion to slash mortgage balances for underwater homeowners. If you have an Ocwen loan, or one from subsidiaries Homeward Residential Holdings and Litton Loan Servicing, call Ocwen at 800-337-6695 or email ConsumerRelief@Ocwen.com.

SunTrust Mortgage will provide $500 million in relief to underwater homeowners. Call SunTrust (800-634-7928) or email through the SunTrustMortgage.com support page.

What if I’ve already lost my home?

Ocwen and SunTrust are paying $125 million and $40 million, respectively, to customers who already have lost their homes to foreclosure.

Eligible Ocwen customers lost their home between Jan. 1, 2009 and Dec. 31, 2012; SunTrust borrowers lost their homes between Jan. 1, 2008 to Dec. 31, 2013. A settlement administrator will contact you, according to the Consumer Financial Protection Bureau. If you have changed your contact information since your foreclosure, the CFPB advises you to update your information with your state attorney general.

I’m not a SunTrust or Ocwen customer. Can I get any help?

The five major banks that were part of the 2012 National Mortgage Settlement already have given away their settlement money. But you still may qualify for other assistance. Contact a credit counseling agency approved by the Office of Housing and Urban Development (HUD), says Melinda Opperman of Springboard Credit Management. (Find one near you at HUD’s official website.) Approved agencies, like Springboard, can put you in touch with relief programs in your area—their counseling is free.

Additional information

CFPB’s Ocwen fact sheet and common questions.

CFPB’s press release on the SunTrust settlement.

TIME real estate

Nearly 10 Million Mortgaged Homes are Still Underwater

Mortgage Bankers Association To Release Weekly Mortgage Market Index June 12
A house for sale in LaSalle, Ill., June 7, 2013. Daniel Acker—Bloomberg /Getty Images

A new reports estimates some 18% of mortgaged homeowners are stuck with homes worth less than their debt, and that's an improvement over previous quarters

A collapse in housing prices has trapped nearly 10 million U.S. homeowners in homes worth less than their mortgages, according to a new report by real-estate price tracking website, Zillow.

The report estimates that in the first quarter of 2014, 18.8% of mortgaged homeowners were stuck in homes that would sell at a loss. That marks an improvement over the final quarter of last year when 19.4% of home mortgages were underwater and a significant improvement over the 2012 high of 31.4% — but still leaves nearly 10 million households struggling in negative equity.

The report estimates that another 10 million homeowners have 20% or less equity on their homes, known as “effective negative equity” as homeowners can’t draw enough home equity to swallow the costs of selling the home and moving upmarket. Many home owners rely on home equity to fund the broker’s fees and meet the next home’s down payment.

Underwater borrowers threaten to leave a lingering chill in the housing market, the study’s authors concluded. “The unfortunate reality is that housing markets look to be swimming with underwater borrowers for years to come,” said Zillow Chief Economist Dr. Stan Humphries.

MONEY

The Economics of Ditching Your Mortgage

For a recent story I did about underwater mortgages, I spoke with a lot of people who owe more on their mortgage than their homes are worth. Inevitably, these people would acknowledge the option of just walking away: giving up on paying the mortgage and leaving the house to foreclosure. Just as inevitably, they would quickly add, “I would never do that.”

There seem to be two camps on walking away. First, there are those who think it unethical and shameful for a person to default on an obligation. And second, there are those who think walking away is nothing compared to the wrongs committed by bankers who profited from making bad loans and the Wall Street firms who gambled with mortgages. (Readers from each camp are debating the issue in the comments section of a recent More Money post.)

Putting aside ethics for a moment, I wonder about the economics. At what point does it make financial sense to default?

For borrowers who are more than 25% underwater — particularly in higher-priced homes where negative equity can top $100,000 — not walking away is economically irrational, writes Arizona law professor Brent White in a paper published in February. “Once one is 40% or more underwater,” he argues, “the financial logic of strategic default is frequently overwhelming.” Given the state of the housing market — one out of four homes are underwater — it’s surprising that more people aren’t just moving on and leaving the keys behind, he says.

Several variables play into the mathematics of default. One is the spread between your mortgage payment and area rents — what you’d pay to rent a comparable house. Others are the amount you’re underwater and the outlook for real estate recovery in your area.

To see how all these numbers might come together, take a look at this scenario from Indianapolis financial planner Michael Kalscheur, based on the situation of a family he helped:

Let’s say you owe $315,000 on a $375,000 home that’s now worth $225,000. Your payment is $2,600 a month, but you can probably rent a decent place for $1,600 a month.

Option One: You walk away. At the end of seven years — when the foreclosure is gone from your credit report — you’ll have saved $84,000 in payments by living in that rental home.

Option Two: You stay in your home. Assuming, perhaps optimistically, that housing prices start appreciating again at their traditional 3% rate, your home will after seven years be worth about $275,000, and you’ll have paid down your mortgage to perhaps $260,000. In other words, you would have paid $218,400 over seven years to have $15,000 in home equity. (But, you might ask, doesn’t the mortgage-interest tax deduction have a value for non-defaulters? Well, real estate pros say the value of writing off interest payments on taxes is easily cancelled out by the expenses of maintaining a home and selling it.)

Now, Moody’s Economy.com report says 62% of major metropolitan areas will return to pre-recession peak housing prices by 2015. So if you live in one of these areas, and your loan terms aren’t too painful, it’s probably best to ride it out. But what if you bought near the peak in some of the hardest-hit areas of Florida, Nevada or California — which aren’t predicted to retake those heights until 2030, or even 2040? Then making a house payment is equivalent to renting, since you’re not building equity.

And what are the economic repercussions of the damaged credit score you’d end up with by walking away? A foreclosure, whether strategic or not, stays on your credit history for seven years, although its impact on your credit score declines over time. In the short run, someone with a 780 credit score will see that cut by as much as 160 points, according to Fair Isaac’s myFico; that can affect everything from insurance premiums to your employment. But if you keep all your other bills paid up, your score can begin recovering in as early as two years.

Clouding the economics, however, are certain misguided beliefs. Many mortgage-payers, says White, overestimate the speed with which home prices will bounce back, as well as the negative impacts of a foreclosure. Yet the sense of fear, shame and failure associated with default, and the belief that we are responsible for paying our obligations, are for most of us simply too strong.

I know the families I interviewed felt that way, many of whom were simply victims of bad timing. I could also feel their frustration over the fact that for them, their house would never be an opportunity to build wealth.

Can you imagine yourself strategically defaulting on a home? Take the survey below.

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MONEY

Homeowner Barricades Self in Foreclosed House

A 53-year-old Ohio man facing foreclosure has sealed himself inside his home, refusing to leave until banks end foreclosures and evictions. According to The Toledo Blade:

“Through an agreement with the Wood County Sheriff’s Office, he was to have been out of the house on U.S. 20 in Stony Ridge by midnight yesterday, but instead, members of the Toledo Foreclosure Defense League, an organization he co-founded, helped seal him inside. A cell phone – and the hole in the front window – are his only means of communication.”

The homeowner, Keith Sadler, and several supporters from the TFDL have set up a video feed and a Twitter feed to get their message out. The Sentinel-Tribune reports that Sadler has publicly fought foreclosure in the past:

This is not the first time for Sadler to take bold action against foreclosures, being arrested previously for disrupting a sheriff’s sale of foreclosed property in Lucas County. His actions there were not successful in getting Lucas County to declare a moratorium on foreclosures, but he is hoping to have more success in Wood County.

“We’re not leaving the home till we get a moratorium on foreclosures, or until we’re dragged out,” Sadler said.

The case is the latest in a string of frustrated homeowners going to extreme measures when they lose their home to the bank. In February, another Ohio man bulldozed his house before turning the property over, and several homeowners from around the country are accused of setting fire to their homes in the face of foreclosure.

Is Sadler’s move crazy? Or has he simply come up with an effective way to bring greater attention and sympathy to struggling homeowners?

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MONEY

Foreclosure Is Hitting Well-Off Families, Too

Who is falling into foreclosure? The Florida Association of Realtors wanted to find out, so it commissioned an analysis that cross-referenced three years of foreclosure filings with demographic data. The study focused only on primary residences; the idea was to ignore investors and speculators, looking instead at people who’d bought homes to live in themselves.

Some of the findings about foreclosed homeowners were pretty interesting:

  • 20% of the filings went to households with more than $100,000 in annual income.
  • 15% of homeowners had college degrees; another 8% went to graduate school.
  • 92% were married, and 65% had children.
  • 35% of homeowners who received a foreclosure filing had lived in their homes for more than 10 years. These were not people who’d bought too much house, but more likely people who lost their jobs and suddenly couldn’t afford the payments.

Personal interviews with homeowners, said the Realtors, indicated that it was very rare for just one financial setback to lead to the foreclosure. The group’s vice president of public policy, John Sebree, called this the “plus one” effect: It wasn’t just a high-interest-rate, high-payment subprime loan that might have caused a foreclosure; it was a bad loan and then a job loss. Alternatively, it wasn’t a job loss that caused an affordable loan to go bad; it was a job loss and a health issue. (For more insight, you can read the full report.)

Have you or someone you know gone through a foreclosure? How complicated were the causes? Post your comments below.

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MONEY

Homeowners Abandoning Houses En Masse

A pair of studies released Thursday found that more homeowners are choosing to let an underwater home go into foreclosure, despite their ability to continue to make payments. Researchers at the University of Chicago and Northwestern University found that 31% of foreclosures appeared to be strategic, up from 22% in last year.

As the number of borrowers who walk away from their mortgages increases, the social stigma associated with foreclosure has started to wane, experts say. “It can be a very logical decision based purely on economics, numbers and returns,” says Keith Gumbinger, of HSH Associates, a mortgage publishing website. “Is there better value to me to abandon this home and rent another one for less money?” A quarter of all borrowers — 11.3 million homeowners — were underwater on their mortgages at the end of 2009.

A Morgan Stanley report, also released Thursday, found that strategic defaulters tend to have higher credit scores, larger loan balances and more recent mortgages than those who remain in underwater homes. From an economic perspective, it makes sense for borrowers who are more than 25% underwater on their mortgage to consider walking away, says Paola Sapienza, a finance professor at Northwestern’s Kellogg School of Management and a co-author of the study.

Borrowers who are up-to-date on their payments but underwater may also be walking away in protest after seeing government programs and bank policies aimed at their delinquent neighbors but offering little assistance for them, Gumbinger says. The Chicago study found that the probability of strategic default increases by 23% when homeowners learn that their neighbor with negative equity has received a partial loan for forgiveness.

Strategic defaults do not come without consequences for the borrower. A borrower with a 780 credit score could see his score fall 150 points after walking away. But if he keeps his credit pristine otherwise, he could be back in prime range — and be able to purchase a home — within two or three years, says Craig Watts, a spokesman with the credit scoring firm Fair Isaac.

Let’s put credit scoring aside for a moment and think about the moral dimension. You can find thoughtful arguments both for and against strategic default. What do you think of the ethics of walking away from an underwater home, even if you have the means to pay?

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MONEY

Think Short Sales Are Tax-Free? Not So Fast

Short sales are heating up now that the Obama administration has increased the amount of cash handed out to help people move and to encourage lenders to make deals.

Having just wrapped up a story about the options available to underwater borrowers, I learned some interesting things about the tax ramifications of short sales that I hadn’t understood before.

When lenders agree to accept less than the principal amount owed in a short sale, the amount of debt that’s cancelled is considered income. Congress, recognizing that getting hit with a big tax bill after narrowly escaping foreclosure felt like salt on a wound, passed a law waiving income taxes for up to $2 million in debt on principal residences through 2012.

But there’s one factor that may mean both federal and state income taxes on cancelled debt: A cash-out refinance. If you bought your home years ago but refinanced during the boom to take advantage of higher prices, pulling money out to pay credit card debt or buy a car or anything that wasn’t used to “substantially” improve the property, that money is taxable income. No escaping the tax man on that one, says Orange County, Calif. accountant Monica Rebella.

On top of that, people who refinanced their home, becoming underwater in the process, and sold later may face capital gains tax on the sale unless they fall within the federal exemption ($250,000 for a single filer, $500,000 joint.) Those limits will, for the most part, cover everyone, but I’d bet that in high-priced housing markets like California, one could run into trouble.

Finally, notes Rebella, if you took advantage of the first-time home buyer credit and then do a short sale or foreclosure within three years, you have to pay the credit back.

An earlier version of this post stated that California Governor Arnold Schwarzenegger had vetoed a bill providing state tax relief for debt cancelled in a short sale. The California legislature subsequently passed a similar bill reinstating the tax relief, which Schwarzenegger’s office indicated he would sign.

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MONEY

Mortgage Delinquencies at Historic Highs

The state of the housing market has long reached a point where it’s good news to hear, “It’s not getting worse.” Unfortunately, according to a firm that tracks borrowers behind on their mortgages, you can conclude at best, “It’s getting worse, but less quickly.”


Rising sales, largely spurred by first-time buyer credits, have given people hope that the beleaguered housing market has finally hit bottom and is even showing signs of life. It’s been impossible, however, for me to get excited about this, considering that the number of people falling behind on their loan payments is growing, not shrinking. Unemployment continues to produce new delinquencies, and it’s been many quarters now since we were talking only about subprime mortgages. No, delinquencies are hitting regular old fixed-rate mortgages to borrowers with good credit, too.

And here’s the latest report from Lender Processing Services out of Jacksonville, Fla.: Delinquency rates have hit historic highs. More than 7.4 million home loans nationwide are in some stage of delinquency or foreclosure, with another 1 million properties either bank-owned or sold out of foreclosure. An incredible 10% of all U.S. loans are delinquent.

The worst-hit areas are the usual suspects: the boom-and-bust states of Florida, Nevada, Arizona, California, plus the economically savaged areas of Michigan and Ohio. Also up there are Mississippi, Georgia, Indiana and Illinois. But few states are escaping the problem; it’s just that the worst states are so, so bad it makes the others look relatively good.

LPS says, “The pace of deterioration has slowed.” That’s the supposed good news. But I have a hard time thinking optimistically about this, not just because in January alone 346,000 borrowers fell behind on their payments for the first time. The other disturbing statistic is that older loans make up a higher percentage of new delinquencies — that means people who already had fallen behind and pulled themselves out of it (maybe through a loan modification program) are delinquent again. This confirms what many have said about the federal programs to reshape mortgages into loans people can actually pay: They’re not doing the job for enough people.

The sheer number of bad loans surely means more foreclosures, which means more houses on the market being sold at bargain-basement prices. And that means we’ll watch our property values continue going down, down, down.

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MONEY

More Money Thursday Roundup: What a Bad Credit Score Can Cost You & the Best (and Worst) Cities for Car Repair

Personal finance from around the Web:

  • Think your credit score doesn’t mean much? Think again. Over your lifetime, a poor one could cost you $200,000. [It's Your Money]
  • If you live in Chicago and need your car fixed, good luck. You’ll need it. AutoMD.com sent mystery shoppers to car repair shops in 50 markets to rank which ones had the fairest quotes. The cities with the lowest rankings — based affordability, price variation and shop integrity — were Chicago, Honolulu and Albuquerque. On the bright side, Memphis was the best place to get a repair, followed by Jacksonville, Fla., and Omaha. [AutoMD.com]
  • Frustrated by foreclosure, one homeowner bulldozed his home to prevent the bank from seizing it. [CreditBloggers]
  • Reality show powerhouse American Idol isn’t just a riveting singing competition. You can learn some personal finance lessons from it, too. [BeingFrugal]

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