Report warns of ‘vacancy crisis’
- February 22, 2012
While foreclosure activity in Virginia fell last year, the high number of vacant houses across the state are continuing to drive down home values, leaving many homeowners owing more than their property is worth.
That is one of the conclusions of a report examining the effects of foreclosures on Virginia’s economy released Wednesday by Home Opportunities Made Equal of Virginia Inc. (HOME), a Richmond-based nonprofit.
“Even as the housing crisis begins to slow, we are going to see this vacancy crisis, which will be with us for some years to come,” said Brian Koziol, the author of the report, who is a housing policy and research analyst with HOME.
The report found that foreclosure activity in Virginia declined 32 percent from 2010 to 2011, from 64,975 to 43,6237, the first drop since the start of the recession in 2007 . Foreclosures, however, still are 1,000 percent higher than in 2006 before the start of the recession.
Subprime mortgages continue to be a major cause of foreclosures. Subprime mortgage foreclosures climbed 51 percent from the third quarter of 2010 to the third quarter of last year , accounting for more than 12 percent of all foreclosures in 2011.
“Subprime mortgages are still wreaking havoc on the economy and will continue to do so,” said Koziol, who describes the mortgages as “unsustainable loan products that should never return.”
As foreclosures continue, residential vacancies are rising, representing 9 percent of the commonwealth’s total housing stock in 2010. Homeowners living near vacant properties in Virginia have lost a total of $26 billion in home equity in the past two years, Koziol said.
In addition, the surplus of vacant houses has driven median home sales prices down 21 percent (from $280,000 to $200,000) since 2007. Aaccording to the report, this drop in property value has resulted in 32 percent of Virginians with a mortgage being “underwater,” or owing more than their home is worth. Virginia ranked eighth in the nation last year in the number of underwater homeowners
Koziol noted that falling property values also affect the revenue of local governments because of their dependence on real estate taxes.
To help stem the tide of foreclosures and help the state’s housing market recover, HOME recommends expanding funding for foreclosure prevention counseling and using “targeted investments” to rehab vacant homes for sale to low- and moderate-income families.
Koziol says money for these efforts could come from Virginia’s part of $25 billion national foreclosure settlement with five major banks.
HOME also believes struggling homeowners should be protected from dual tracking in which lenders work on loan modifications for a home at the same time they are pursuing foreclosure on the property.
“It’s important that we prevent as many unnecessary foreclosures as we can since this economic recovery is really fragile,” Koziol said.