Foreclosures Are Rising - and in the Wrong Places for Larger U.S. Economy

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After months of declines, foreclosures were up again in August by about 7 percent compared to July. That's not good news to anyone hoping for an economic turnaround. But look closer at where those foreclosures were in Patchwork Nation's 12 county types and there is even more to be concerned about.

Numbers from the firm RealtyTrac, analyzed by Patchwork Nation, find that some of the biggest increases were in the nation's wealthier places: The Monied Burbs and big city Industrial Metropolis counties saw bigger rises. The small town Service Worker Center counties, which have been hit hard in the recession, were also up sharply.

The bumps represent different sets of problems, both disheartening.

First, the increases in the wealthy communities suggest that people in those counties still may be leery of spending money in the months ahead - something they need to do if the economy is to turn around. Second, the rise in the poorer Service Worker counties suggest many in those places that have been struggling to ride out the recession may be starting to hit a wall financially.

There are some positives in the latest report. Some of Patchwork Nation's county types are seeing better foreclosure numbers - the socially conservative Evangelical Epicenters and aging Emptying Nests, for instance. But the larger question is whether these foreclosure numbers represent the other shoe to drop that many experts were expecting in the housing market.

And unless there is a sudden turnaround in the September foreclosure numbers (something unlikely) the message in these numbers to those running for president in 2012 is clear: See the U.S. economic picture now? Don't expect it to be prettier by this time next year.


The Other Shoe

If you toggle between the map above and this foreclosure map from April, you'll see the pattern of increase more clearly. Look how much darker the red is around the many of the big metro areas in August as compared to April - around Boston, St. Louis, even Washington, D.C.

For months now, as the banks cleaned up the robo-signing mess that led them to slow foreclosure notices, the question has been what will happen when lenders get more active again? Where will the foreclosures fall?

This latest set of numbers offers at least some of that answer and it's not good.

Foreclosures per 1,000 Housing Units July vs. August

Community Type July August Change
Monied 'Burbs 1.7 1.9 8.3%
Minority Central 0.8 0.8 -2.6%
Evangelical Epicenters 0.6 0.5 -9.9%
Tractor Country 0.3 0.4 19.3%
Campus and Careers 1.3 1.4 11.3%
Immigration Nation 2.9 3.2 10.3%
Industrial Metropolis 1.6 1.9 13.5%
Boom Towns 2.3 2.3 2.3%
Service Center 0.7 0.8 18.8%
Empty Nests 1.8 1.7 -3.3%
Military Bastions 1.2 1.3 11.3%
Mormon Outposts 2.0 2.1 2.3%
Nationwide 1.6 1.8 7.2%

Source: RealtyTrac data analyzed by Patchwork Nation

The four wealthiest county types in Patchwork Nation - the Burbs, Industrial Metros, Boom Towns and Campus and Career counties - all saw an increase in foreclosure activity. Those places have higher-than-average median household incomes and they hold some 215 million of the estimated 312 million Americans.

In an economy built on consumer spending, those people need to be leading the charge to the cash register if things are going to improve. These numbers will make that less likely.

As we have noted in more in-depth reportage, foreclosures have a truly pernicious effect on a community. Even if just a few houses in a neighborhood are in foreclosure, it usually affects the housing values of those living nearby. It also takes a toll psychologically on the willingness to spend among those who see the notices in the paper or on the homes.

Last week, in our visit to Nashua, N.H., (a Monied Burb), high school Principal David Ryan told us that the pages of foreclosure listings in the local paper had left him a bit "spooked." There are Monied Burbs like Nashua and people like Ryan all across the country getting spooked and spooked shoppers are less likely to open their wallets.

At the other end of the spectrum, the 658 Service Worker Center counties saw an increase of 18 percent in foreclosures in August. Their numbers are still low overall, about one in every 1,000 homes compared to more than three per 1,000 in the Industrial Metros, but the uptick is noteworthy because as we have noted often on this blog, those places have taken a lot of hits during the recession.

The future in the Service Worker counties looks particularly challenging as government cuts look as though they may hit them particularly hard. People in those counties were already unhappy. They felt the recession before most others did and they lived closer to the margins. And if the foreclosure numbers keep rising there they will likely be an especially foul mood a year from now as the presidential election nears.

An Issue That Isn't Going Away

The foreclosure numbers are just one in a set of bad numbers about the housing market in recent days.

On Tuesday, the Commerce Department reported housing starts were down some 5 percent in August. On Monday, the National Association of Home Builders reported its index of builders' confidence fell to 14 in September. Anything below 50 signifies a belief the market is poor.

What might turn housing around? Better unemployment numbers could give people confidence and get them thinking of moving. But those job figures have been underwhelming for months and it's hard to see them getting much better with construction stalled.

In short, at the moment a self-reinforcing vicious cycle rules the economy with no easy way to break out.

On the campaign trail, the economy is clearly the No.1 issue with candidates talking about their plans to turn things around. Patchwork Nation addressed at least a few of those plans last week.

No one yet, however, has come forward with a serious plan to right the struggling housing industry. But as problems grow in the swing-voting Monied Burbs and elsewhere don't be surprised if that changes - and soon.