In the eight-county Philadelphia region, foreclosure filings have averaged about 2,000 a month for the last year, ranking it 67th in the most recent RealtyTrac survey of 100 metro areas. (First is most foreclosures, 100th least.)
"Foreclosures are low where prices rise at a respectable rate," Yun said. Median prices in this region continue to increase.
"Where they are flat or decline," he added, "foreclosures rise."
Because Philadelphia itself has the largest population, the most houses, and the lowest median income, its foreclosure rate is always the highest in the region. Some of that is attributable to predatory lending in low- to moderate-income neighborhoods.
Amid concerns about subprime lending, the housing industry is asking federal regulators for loan-underwriting standards for all mortgage originators that include verification that the borrower has the ability to repay the loan based on all its terms, including higher payments because of interest-rate adjustments, and taxes and insurance.
Still, observers here report, the impact of foreclosures on housing inventory or median prices appears minimal.
"I haven't seen a single foreclosure," said Prudential Fox & Roach agent Christopher J. Ryan, who is based in the Art Museum office but sells in other neighborhoods.
"This is not like it was in 1988, during the savings-and-loan crisis, when prices were really dropping and you were competing with the Resolution Trust Corp. trying to get rid of properties that had been taken back," Ryan said. "I'd be selling a property bought for $100,000 a few years before for $70,000, and the RTC would be selling a similar house down the street for $50,000."
Yun, the Realtors' association economist, said the impact of foreclosures is greater in markets with more investors and where exotic mortgages were used to finance the purchase of higher-priced houses.
During its recent condo boom, Center City was not overwhelmed by investors, and many developers used clauses in sales contracts to keep them out of their projects. Yet "if there are foreclosures, the investors snap them up in a second," said Fred Glick, a real estate and mortgage broker.
Nor have there been recessionary reasons for the loss of homes, Glick said. "People still have jobs, interest rates are pretty good. There is a slight oversupply of certain units, but overall the market is in good balance.
"There are always people who default on loans because of financial or social situations. This cycle is higher because of mortgage fraud and misrepresentation of so-called 'option ARMs' [adjustable rate mortgages], where people were told that they were getting a 1 percent loan when . . . they were not."
That seems to be the situation in some Northeast Philadelphia neighborhoods, said Chris Artur, of Artur Realty in Mayfair.
"We've been seeing more short sales than foreclosures," said Artur, who has been working with lenders on some of those properties.
A short sale occurs when the outstanding loans against a property are greater than what the property can be sold for.
"In the old days, the banks said, 'Pay or we'll foreclose,' but these days, a lender will try to work with the borrower, even if it means taking a loss," he said.
In one case, "a woman bought a house two years ago with an interest-only loan at 100 percent of sale price, with the seller paying 6 percent of the closing costs," Artur said. Circumstances changed, she got behind on the mortgage, and she and the lender agreed to a sale.
"The original appraiser appears to have inflated the value of the house," Artur said. "She could only get $20,000 less than the mortgage . . . and the lender agreed to swallow the loss."
Some experts suggest that instead of a short sale, homeowners in trouble should try to rent their properties to pay mortgage, insurance and taxes. But Artur said renting is not always the answer.
"If values aren't increasing, why hold on to it?" he asked. "Consider, too, the wear and tear on the property over time could also contribute to decreased value."
In some parts of the Northeast, a large number of New York investors moved in during the boom and, in many cases, pushed prices up beyond what the market would bear. That shut out a lot of first-time buyers, who already had been using government assistance and seller givebacks to purchase houses, and inflated values that couldn't be sustained in marginal neighborhoods.
"Whether or not houses hold their value has come to be measured by blocks," Artur said. "In places like West Mayfair, the best houses are holding or increase in value. On older blocks, there has already been a decline of 10 to 15 percent."
Montgomery County, second in population after Philadelphia and with a sizable housing stock, is No. 2 in foreclosures in the region, according to the latest RealtyTrac data.
But here, too, observers say, foreclosures don't seem to be having an effect on inventory or prices.
"Our sales have been affected by the overall downturn since last summer, and, frankly, quite a bit," said Marshal Granor, a principal in Granor Price Homes of Horsham. However, "we have not seen a difference due to unavailability of subprime loans or foreclosures. In fact, by cutting costs and prices, we have increased our sales significantly in May."
Peggy S. Varani, vice president of new homes and estates at Coldwell Banker Preferred in Plymouth Meeting, said she has seen no indication of foreclosures offering competition.
"First of all, people who are looking into new homes aren't typically also looking at foreclosures," Varani said. "We do ask prospective buyers what else they are looking at, and no one mentions foreclosures."
Foreclosure volume has a greater impact on the existing-home market, said Bernie Markstein, an economist at the National Association of Home Builders in Washington.
"The only time a foreclosure would compete with a new home would be if the house was in the same development, but most likely that would be a fraud issue," he said.
Condos are the one new-home market nationally with high rates of foreclosure, said Gopal Ahluwalia, the NAHB's vice president for research.
"In many regions of the country, the effect has been significant, unbelievable," Ahluwalia said. "And foreclosures are adding to the inventory in big numbers, since we are talking about 400,000 condo units built in 2004 and 2005 being affected."
Although RealtyTrac reports 147,708 foreclosures nationwide in April, the numbers have not been rising consistently.
"The foreclosure rate is actually very low, and we never expected it would be," Markstein said. A lot of houses were built, bought and sold in the boom years, though, "and since most people can easily pay the mortgage for three years and a lot of subprime loans haven't adjusted, there's really no way to predict what will happen."
Philadelphia Area Foreclosure Filings
County April 2005 April 2006 April 2007
Bucks 129 53 44
Burlington 198 102 141
Camden 354 289 529
Chester 56 52 69
Delaware 273 244 16
Gloucester 93 71 129
Montgomery 210 154 95
Philadelphia 1,400 896 985
Total 2,713 1,861 2,008
SOURCE: RealtyTrac Foreclosure Market Report
Contact real estate writer Alan J. Heavens at 215-854-2472 or firstname.lastname@example.org.