The Crisis Climbs Over the MountainsDan Levy
With a $150,000-a-year job at a title insurance company, Nan Holmes thought she had an insider's view of the local real estate market when she bought a new three-bedroom home in Boise, Idaho, in 2007. Then she watched the bottom fall out of housing in California, Nevada, and Florida, precipitating a severe recession. Now the real estate crunch has hit Idaho and the rest of the Northwest, and Holmes, 55, is in trouble. The title insurance business has shrunk along with home sales; her income has fallen by half, forcing her to turn to savings. She stopped paying her mortgage in April and put the house on the market for about $145,000 less than she owes the bank. "How long will it take for the market to turn so I can just break even?" she asks.
The mortgage crisis, far from easing, is deepening in the Northwest and Midwest. With 15 million Americans out of work, home prices and consumer spending are under pressure. Another tumble in property values could push the economy back into recession, former Federal Reserve Chairman Alan Greenspan said on Aug. 1. "The numbers are exploding due to unemployment and economic displacement," says Rick Sharga, senior vice-president for marketing at mortgage-data firm RealtyTrac in Irvine, Calif. "We will see them get a lot worse unless we see some job creation."
Foreclosure filings rose in the second quarter in Idaho, Illinois, Utah, and Colorado compared with a year earlier. Those states all rank among the top 10 in foreclosure rates in the nation. The number of homes seized by lenders at least doubled in 19 states and more than tripled in seven, according to RealtyTrac. Nationally, initial jobless claims rose in July, and unemployment stood at 9.5 percent, near a 27-year high, Labor Dept. figures showed.
"The housing downturn started late in the Northwest, and now it's ending late," says Mark Zandi, chief economist at Moody's Analytics (MCO) in West Chester, Pa. Boise's median house price was $140,100 in the second quarter, down 34 percent from the peak of $212,800 in 2007, data from the National Association of Realtors show.
The Boise metropolitan area, home to more than a third of Idaho's 1.5 million residents, has been pummeled by housing-related construction and retail job losses. Since 2007, there have been more than 6,000 layoffs at chipmaker Micron Technology (MU) and grocer Albertsons, says Michael Ferguson, the state's chief economist. Idaho's jobless rate was 8.8 percent in July, up from 8.2 percent a year earlier and 2.9 percent in July 2007. "This is an off-the-chart, extreme financial event," Ferguson says. "I wasn't around for the Depression, but in the last half-century there has been nothing like this."
In Charter Pointe, a development built on cornfields 11 miles from downtown, more than half of the homes listed for sale are bank-owned or "underwater," meaning the property is worth less than the mortgage. Dairy cows loiter in a nearby pen, and baling machines grind late at night.
Micron, founded in Boise in 1978 with early investors such as the late potato mogul J.R. Simplot, cut local production and 1,500 jobs last year, as semiconductor prices fell worldwide. The company has more than 5,000 full-time workers in the area, says spokesman Daniel Francisco. The chipmaker employed twice that number as recently as 2001.
The local payroll at Albertsons shrank following its 2006 buyout by companies including Eden Prairie (Minn.)-based Supervalu (SVU) and Cerberus Capital Management, the New York-based private equity firm. The buyout ended seven decades of Boise ownership for the grocery chain, as well as its plans for 1,000 new hires, according to Ferguson.
The state lost 6.9 percent of its jobs from 2008 through 2009, a higher proportion than the U.S. average, and its timber industry declined 38 percent, IHS Global Insight says. Government workers and services haven't been spared. The Idaho state budget, which peaked at $3 billion in 2008, dropped by a fifth, to $2.38 billion, for the fiscal 2011 year that began on July 1. More than 200 positions were cut. Furloughs have been imposed in health and welfare, tax collection, and the attorney general's office.
The value of residential transactions in Idaho's Ada County, which includes Boise, was down 62 percent in June from the peak in 2007, multiple listings data show. Boise had the highest metro area foreclosure rate outside of California, Florida, Nevada, or Arizona in the first six months of the year, according to RealtyTrac. "The worst is over, but it's going to be a long road ahead," says economist Steven Frable at IHS Global Insight.
TitleOne, Holmes's employer, had 175 workers in 2007 as housing boomed. It now has 80. Her loan was referred for foreclosure proceedings in July, an action that happens when a borrower is late by 90 days or more, according to her lender, Charlotte (N.C.)-based Bank of America (BAC).
Holmes, a divorced mother of two, put her house on the market in June and has applied for a federal program that offers incentives to loan servicers and homeowners to complete "short sales," in which the bank accepts less than what it is owed on the mortgage.
Holmes paid $370,000, with 100 percent financing, and is asking $225,000. Almost a third of real estate listings in her area are distressed properties, with seven months of inventory on the market in Boise at her price. "I was never raised to be in this position," Holmes says, showing pictures of her family, as well as of the oversize sunken tub in her master bathroom. "I've tried to do everything I can think of."
The bottom line: Turmoil in Boise, Idaho, illustrates how the housing crisis and recession have hit late and hard in the Northwest.