Foreclosures Surge in D.C. Area After Federal Budget Cuts
Foreclosure starts in the Washington suburbs rose last month following federal budget cuts that may have made it harder for some homeowners to pay their mortgages, even as defaults fell across the country, RealtyTrac said.
Initial foreclosure filings climbed 144 percent from August in Fairfax County, Virginia, and more than doubled in Prince William, Loudoun and Fauquier counties, the real estate research firm said today. Fairfax’s jump was the biggest in the U.S. among counties with populations of 1 million or more.
This year’s across-the-board budget reductions have led to “sequester pain” including work furloughs that began in June, according to the Bipartisan Policy Center. Homeowners may be hurt further by the partial government shutdown as President Barack Obama and House Republicans wrangle over spending, said Brian O’Reilly, president of Collingwood Group LLC.
“There is no question that the sequester has had an impact on the economy in Washington,” O’Reilly, whose Washington-based firm advises financial clients, said in a telephone interview. “And against the backdrop of the current shutdown, I would say it would not be a surprise to anyone to see continued softening in this area.”
In Maryland, where required court approvals for home seizures lengthen the foreclosure process, first-time notices in September more than doubled from a year earlier in Montgomery County, and tripled in Frederick County, Irvine, California-based RealtyTrac said. Maryland’s 230 percent gain statewide ranked second in the U.S., behind a 263 percent surge in Maine.
“The timing for this surge in foreclosure activity makes sense and correlates almost exactly to when the sequester began earlier this year,” RealtyTrac Vice President Daren Blomquist said in a phone interview. “The faster repossession timeline in Virginia also allows lenders to liquidate assets more quickly, and in an improving market they would be motivated to do so.”
Washington property values rose 1.4 percent in July, the fifth straight increase on an annual basis, amid low unemployment and historically cheap mortgages, according to the S&P/Case-Shiller index. Values in the D.C. metropolitan area are down 19 percent from their May 2006 peak, compared with a 21 percent decline from the July 2006 high for the 20-city composite measure.
Washington-area households and businesses are nevertheless feeling the sting of reduced government payrolls, according to an assessment by Bipartisan Policy Center authors led by Steve Bell, who worked on the staff of former Republican Senator Pete Domenici and was a managing director at Salomon Brothers.
“While we only have anecdotal evidence thus far of the impact of sequestration on private-sector businesses and workers, we still hold to our belief that real job losses (not just furloughs) in small- and medium-sized businesses have already begun,” Bell wrote in the Aug. 2 report. The center was founded in 2007 by former Senators Bob Dole, Tom Daschle, Howard Baker and George Mitchell.
While foreclosures increased in the Washington area last month, total U.S. filings -- default notices, scheduled auctions and bank repossessions -- plunged 27 percent from a year earlier to 131,232, the 36th straight decline on an annual basis, according to RealtyTrac. Filings fell in 33 states.
The national numbers “show a housing market that is haltingly returning to health,” Blomquist said in today’s report. “Foreclosures are clearly becoming fewer and farther between in most markets.”
The government shutdown that began this month may hurt vendors after disputes over spending are resolved, according to Michael Lewis, managing director at McLean, Virginia-based Silverline Group LLC. About $500 billion in federal contracts are made each year to tens of thousands of businesses, with some payments already late or canceled. About 800,000 people, including Defense Department workers, were furloughed on Oct. 1.
Professional and business-service employment in Fairfax County, where the Central Intelligence Agency has its Langley headquarters, dropped by 1,500 jobs, or 0.4 percent, in the 12 months through July, the second consecutive decline on an annual basis, according to the county website. Federal agencies pared 400 jobs, and the construction industry lost 3,800.
Virginia’s 52 percent monthly increase in foreclosure starts was the second-highest in the U.S., after New Jersey’s 55 percent, according to RealtyTrac. Lenders in the state seize distressed homes and sell them in 189 days on average, the fourth-fastest pace of any state, the company said.
“Fairfax County is at risk of continued softening because 35 percent of jobs in the county are directly tied to government employment or indirectly through contractors,” said O’Reilly of Collingwood Group. “We can anticipate federal spending levels likely decreasing further, certainly not increasing.”
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