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‘It’s a disturbing trend.’ The rate of foreclosure starts in South Florida has spiked

What is to blame for the high foreclosure rates in South Florida?

Could last years hurricane season spiked the foreclosure rates?
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Could last years hurricane season spiked the foreclosure rates?

Hurricanes have given Florida a break thus far this summer. But a stealthier kind of storm has already hit the state.

A new study by Attom Data Solutions shows Florida had one of the highest rates of foreclosure starts in the U.S. in July, compared to the same period last year. The report, which tracked foreclosure filings issued by county governments on single-family homes and condos, shows one in every 1,180 housing units in Florida — a 35 percent increase year-over-year — was subjected to a “lis pendens,” which is a filing by a bank warning of pending foreclosure activity due to late payment.

Only three other states — New Jersey, Delaware and Maryland — had higher rates of foreclosure starts.

The reasons for the surge differ by market. But the increase is not the start of a reprise of the 2008 financial crisis.

The rate of foreclosures in the U.S. is actually down to 0.5 percent, according to CoreLogic — the lowest since 2006.

But at a metropolitan level, the Attom study shows the number of foreclosure starts in Miami-Fort Lauderdale-West Palm Beach jumped 29 percent in July — the third consecutive month of year-over-year spikes (starts went up four percent in May and 35 percent in June).

South Florida was one of three regions in the study’s list of top 10 metros, ranked by population, to feel the foreclosure heat this summer. Los Angeles and Houston were the other two.

Daren Blomquist, senior vice president and analyst at Attom, said ups and downs in foreclosure start rates are normal. He also said last year’s busy hurricane season, which impacted 4.8 million mortgaged properties, could have contributed to the increase. (According to CNN Money, loans that fell 30 days past due or longer rose 48% in Irma-affected areas and 67% in Harvey-affected areas.) Some banks and lenders granted mortgage forbearance extensions that could have lasted as long as May.

But Blomquist said the spike in other bellwether housing markets in the U.S. — such as Austin, Fort Wayne and San Diego — suggests the rise in foreclosure starts could have deeper implications.

‘The tip of the spear’

“Foreclosures are the tip of the spear of distress entering the housing market,” he said. “Those upticks could result in more underwater homes, because when distressed properties hit the market, they can drag down overall home values.”

According to Attom’s 2018 second quarter report, one in 10 U.S. properties — or 10.1 percent of all properties with a mortgage — is seriously underwater, defined as properties whose market value is 25 percent lower than its current balance of loans. That’s a radical improvement from the second quarter of 2012, when 29 percent of all homes in the U.S. — and 46 percent of Florida homes — were seriously underwater.

Still, the gradual uptick in foreclosure starts in markets such as Miami-Dade, where income inequality and stagnant wages continue to worsen, is a troubling sign.

Dr. Ned Murray, associate director of the Florida International University Metropolitan Center, said that although exact figures aren’t yet available, his research confirms the foreclosure-start activity in South Florida has increased significantly. The neighborhoods primarily affected are Homestead, Opa-locka, City of Miami, Hollywood and Pompano Beach — all working-class areas.

“It’s a disturbing trend, especially when you see the biggest impact is in less affluent communities,” he said. “This is the older, less valued housing stock.”

Ironically, Murray said one possible cause of foreclosure starts in more modest neighborhoods could be growing real estate values.

“Because values have increased steadily over the last five to six years, some homeowners took out second mortgages and equity loans,” Murray said. “But wages have remained flat and housing costs such as insurance keep going up.”

Analysts warn this new wave of foreclosure starts could even impact higher-priced homes, such as the oversupply of expensive condos in the downtown Miami area.

“The condo situation is starting to mirror the way it looked pre-recession in terms of price drops in Miami,” said Michael Sichenzia, president of the Deerfield Beach-based consulting firm Global Advisors. “Prices have dropped considerably while supply keeps increasing, and there’s still a ton of product that has yet to come to market. I think that the next two years do not bode well for prices in general in Miami. The market is overheated again and you’re seeing the beginning of that cool-down now.”

Update: This story has been amended to correct a housing statistic.

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