Foreclosures down in Cape Girardeau County

The number of foreclosures in Cape Girardeau County is falling, an encouraging sign for a struggling housing market.

In the first nine months of this year, 128 foreclosures were recorded in Cape Girardeau County, a 21 percent decrease in foreclosures compared to the same period in 2010.

"Any decline in foreclosures is a welcome sign for our local economy," said Bill Cole, president of the Cape Girardeau County Multiple Listing Service. "Hopefully, this means less homeowners are in trouble financially. It helps sellers when they aren't competing with foreclosed properties."

The majority of foreclosures in Cape Girardeau County are not on mortgages held by local banks. Most foreclosures in Cape Girardeau County are filed by Freddie Mac, one of the nation's biggest buyers of home mortgages. Along with its sister company, Fannie Mae, it owns or guarantees about half of all U.S. mortgages -- nearly 31 million loans worth more than $5 trillion.

The decline in foreclosures may be temporary, said Mike Devaney, professor of finance at Southeast Missouri State University. A 10-month investigation into the mortgage giants' allegedly improper foreclosure practices including "robo-signing," may have just delayed many foreclosure proceedings. Analysts expect banks will resume processing foreclosures that have been in limbo this fall and winter. "I don't think they're through it all with the foreclosures. I think there will be more foreclosures," Devaney said. "Temporarily you may see a decline because of some of the legal issues that are involved, but nationally they haven't really worked through all of the problems in the housing market that are out there."

Cape Girardeau County foreclosures have increased steadily for the past three years, from 176 in 2008 to 186 in 2009 to 206 last year, according to trustee deeds filed at the Cape Girardeau County recorder of deeds' office.

Foreclosures, which typically sell for less than market value, are dragging down overall home prices, say real estate agents and bankers.

"What's been happening for the past two or three years is because of all foreclosures that have been occurring the market's been flooded with foreclosed houses that have been selling at discounts," said Danny Essner, vice president at Capaha Bank. "It makes it more difficult for somebody to sell a house at its true market value, when they're competing against a foreclosed house."

The current average sale price for a foreclosed home, $82,800, is substantially less than the average sale price of all homes, $157,000, according to local Multiple Listing Service statistics.

So far in 2011, 105 homes listed as foreclosures, bank-owned properties or short sales have sold in Cape Girardeau County, amounting to 9.96 percent of the dollar volume of homes sold.

Right now, 44 homes are for sale in those categories, eight of which are under contract, said Bill Cole, president of the Cape Girardeau County MLS and owner of Realty Executives. These 44 homes represent 8.2 percent of all current listings in Cape Girardeau County, he said.

Whether a foreclosure affects neighborhood property values positively or negatively depends on the situation, Cole said.

"If the property is purchased by an individual who improves and resells the property in a short period of time it's beneficial to the neighboring property. It this case the comparable market price becomes the sale price of the ‘new and improved' house, rather than the sale price of the foreclosure," Cole said.

"If a property is in good shape but is foreclosed because the owner had financial issues, then sold at less than market value, it has a negative impact on the neighborhood," Cole said. "If there are several foreclosures in the same neighborhood it's even worse," he said.

New mortgage requirements aimed at preventing future foreclosure crises require banks to obtain comparable appraisals from other recently sold homes in the same neighborhood.

This is challenging for homebuyer, prohibiting many local home loans from being approved, Essner said. "If somebody's wanting to buy a $300,000 house, they might have 30 percent to put down and excellent credit, but can't get a loan because the appraiser can't get comparable sales," he said. "This really has no bearing on whether the buyer will pay his loan."

Realtors don't like the new comparable sales requirements for appraisals either, Cole said.

Reinforcing the problem

The housing industry remains a key reason why the economy continues to struggle two years after the recession officially ended.

High unemployment reinforces the problem in the housing market, Devaney said.

"If you don't have a job or your spouse has lost their job, you can't move because you can't sell your house. Some people continue to serve their mortgage even though they are underwater," he said.

Nationally, about 20 percent of mortgages are estimated to be "underwater," meaning the owners owe more on their mortgage than their home is worth, according to a study released earlier this year by national analytics firm CoreLogic.

Working through the foreclosure process as quickly as possible is important for housing market recovery, said both Devaney and Essner.

"All you're doing when you drag these foreclosures out is increase the banks losses and the losses of people who bought mortgage bank securities," Devaney said. "When all is said and done, banks don't want to foreclose on these. They don't want to be in the real estate business. But they have little choice."

National mortgage companies, like Freddie Mac, just want to get rid of the homes and are willing to accept fairly low prices, Essner said. While Capaha Bank and other local banks in the Cape Girardeau market have had few foreclosures in their own portfolios, Essner said banks typically lose money on the deals.

"What we'd like to see is the customer stay in the home and continue to make payments," Essner said.

Many of the homes foreclosed in Cape Girardeau County this year were purchased in 2006 and 2007, during the peak of the housing bubble.

"That's when the real estate market was really hot. A lot of people got home loans that really shouldn't have been buying a home," Essner said.

Today's housing market is far different and sales remain sluggish.

The number of homes sold in Cape Girardeau County is up a little over one percent from last year with the average sale price is up about 6 percent, Cole said.

"Given what you hear nationwide, this is outstanding," he said.

Across the country, new home sales dropped in August for the fourth straight month and this year is shaping up to be one of the worst for sales of new homes since record keeping began in 1963, according the U.S. Commerce Department.

"Housing is just not as appealing as an investment. It's still a consumer good and people still have to live somewhere. There are tax advantages from it. But I think it's going to be a long time before it returns to the kind of market where people see it as a great way to build their nest egg," Devaney said.

mmiller@semissourian.com

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