If you want to know how the 2008 presidential election was won you need to look no further than the nation's biggest foreclosure centers.

Seven of the top 10 foreclosure states voted Republican in the 2000 and 2004 presidential elections, while three states went Democratic. This time around the Democrats captured eight of the top 10 foreclosure states.

The difference in terms of electoral votes is significant. In the 2000 and 2004 presidential elections today's 10 leading foreclosure states produced 97 electoral votes for George Bush and 87 votes for Al Gore (2000) and John Kerry (2004) In 2008 the top-10 states generated 159 electoral votes for Obama — and just 25 for McCain.

In October 2007 I wrote that the presidential election could be won by any candidate who carried the purple states — not the red states or the blue states, but the 10 states with the highest foreclosure levels.

The logic was that these states could be seen as a distinguishable voting block because they had a shared experience — massive numbers of foreclosures. Big foreclosure numbers suggested that local home values had taken a pounding. In turn, lower home values meant smaller property tax collections, fewer government services and reductions among state government workers.

When I wrote last year figures from RealtyTrac.com showed that the 10 states with the most foreclosures at the time were, in order, Nevada, Florida, California, Michigan, Arizona, Georgia, Ohio, Colorado, Texas and Indiana.

These states represented 203 of the 270 electoral votes needed for a presidential election victory. A candidate who could carry the purple states at that time would need just 67 additional electoral votes to win the White House.

This year the list is largely unchanged. The latest RealtyTrac data shows that the top 10 foreclosure states include Nevada, Florida, California, Arizona, Georgia, Michigan, Ohio, New Jersey, Indiana and Colorado. New Jersey has been added to the list while Texas is now ranked 24th for foreclosures, a substantial improvement.

In terms of electoral votes we swapped Texas (34 electoral votes) from the first list for New Jersey (15 electoral votes), a net reduction of 19 electoral votes. In total, the current purple coalition states have 184 electoral votes.

So how did the current members of the purple states coalition vote? With historic data from RealClearPolitics.com let's look at the results:

 

State-By-State

1.    Arizona (10 electoral cotes) Voted for Bush in 2000 and 2004. In 2008 Arizona voted for McCain.

2.    California (55 electoral cotes) Voted for Gore in 2000 and Kerry in 2004. In 2008 California voted for Obama.

3.    Colorado (9 electoral cotes) Voted for Bush in 2000 and 2004. In 2008 Colorado voted for Obama.

4.    Florida (27 electoral cotes) Voted for Bush in 2000 and 2004. In 2008 Florida voted for Obama.

5.    Georgia (15 electoral cotes) Voted for Bush in 2000 and 2004. In 2008 Georgia voted for McCain.

6.    Indiana (11 electoral cotes) Voted for Bush in 2000 and 2004. In 2008 Indiana voted for Obama.

7.    Michigan (17 electoral cotes) Voted for Gore in 2000 and Kerry in 2004. In 2008 Michigan voted for Obama.

8.    Nevada (5 electoral cotes) Voted for Bush in 2000 and 2004. In 2008 Nevada voted for Obama.

9.    New Jersey (15 electoral cotes) Voted for Gore in 2000 and Kerry in 2004. In 2008 New Jersey voted for Obama.

10. Ohio (20 electoral cotes) Voted for Bush in 2000 and 2004. In 2008 Ohio voted for Obama.  

The Texas Factor

Texas (34 electoral votes) — which was on the top 10 foreclosure list in 2007 — voted for Bush in 2000 and 2004, and for McCain in 2008. It has been replaced on the latest top-10 list by New Jersey (15 electoral votes).

The question raised by Texas is whether the state would have voted for Obama in 2008 had it remained among the top-10 foreclosure states. McCain in 2008 rolled up a substantial lead, winning 55 percent of the state's votes compared to 44 percent for Obama. A 6 percent change in the Lone Star vote would have produced a different outcome.

Could higher foreclosure levels in Texas have generated a different electoral result? There's no way to know, but given the voting shift seen among the leading foreclosure states in 2008 it's not unreasonable to think that the answer would be “yes” — a notion which will not go unnoticed by politicians nationwide.
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Peter G. Miller is the author of the Common-Sense Mortgage and is syndicated in more than 100 newspapers.

Looking at fourth down and goal with time running out, and having resorted to every trick in the playbook, including lending billions to help out the nation’s — and the world’s — struggling financial systems, Ben Bernanke and his team over at the Federal Open Market Committee tried a run up the middle one more time Wednesday, lowering the ever-popular federal funds rate by half a percent to 1 percent.

A huge rally on Wall Street the day before (almost 900 points) anticipated the cut, although some analysts were hoping for more than 50 basis points. More importantly, many are looking for this move to signal the lowering of mortgage rates to help out struggling homeowners trying desperately to stay in their homes.

In its official statement, the Federal Open Market Committee for the first time in many months did not cite the nation’s continuing “housing contraction” as one of the primary reasons for the cut.

This time the committee is citing a decline in consumer spending, slow economic activity overseas and “the intensification of financial market turmoil” as key concerns. AND, the committee seems to be patting itself on the back this time for all of its recent policy decisions, although it still admitted that “downside risks to growth remain.”

As The New York Times is reporting, the Commerce Dept. released its report on consumer spending this morning and the news is not good. Personal consumption for Q3 2008 fell at an annual rate of 3.1 percent, the biggest drop since 1980, when the economy was in a deep recession.

Jobs are being cut all over the country, people are losing their homes to foreclosure and credit card debt is out of control. All told, many analysts are already declaring that the American economy is now officially in a recession.

According to figures provided by the Federal Reserve, consumers in this country have charged up $900 billion in credit card debt. The Associated Press reported in BusinessWeek this week that the Financial Services Roundtable, a financial industry alliance, and the Consumer Federation of America have joined forces in asking federal regulators to do something to reduce consumer credit card debt by as much as 40 percent.

Between credit card debt and a full-blown mortgage crisis on its hands, the Fed is less worried about inflation at this juncture and more focused on the reluctance of banks to loan money, according to the Times.

Whether this is the Fed’s last hurrah before a new administration takes office in January or not remains to be seen. Still, the next president is going to inherit many problems, and a glut of foreclosures appears to be one of them.

Potential homebuyers and real estate investors looking for bargain properties will probably have at least all of 2009 and maybe even 2010 to shop around. There is obviously more pain to come before we see daylight at the end of this tunnel.

What do you think about the Fed’s latest move? Will it make a difference where you live in terms of reducing foreclosure activity? We’d like to hear your opinion.

There’s good news and bad news when it came to home prices nationally in August. Let’s start with the good news for a change.

The S&P/Case-Shiller Home Price Indices released yesterday showed that the acceleration of decline in home prices was only moderate in August. That’s the good news!

The bad news: the decline in home prices for both indices set new records in August. The S&P 10-City Composite Index showed a 17.7 percent annual decline versus a 16.6 percent annual decline for the 20-City Composite Index. That compares to July when the indexes were down 17.5 percent and 16.3 percent respectively.

“The 10-City Composite and the 20-City Composite reported record 12 month declines. Furthermore, for the fifth straight month, every region reported negative annual returns,” said David M. Blitzer, Chairman of the Index Committee at Standard & Poor’s.

The biggest losers were the Sun Belt market. Phoenix and Las Vegas both reported annual declines exceeding 30 percent. Miami, San Francisco, Los Angeles and San Diego all recorded declines in excess of 25 percent.

On a monthly basis the only winners were Cleveland and Boston which both had barely positive results in August. The biggest decliner for the month was San Francisco.

As S&P is reporting, these broad-based declines established a trend in the first half of 2008 that has continued into the second half of the year. These are the kinds of trends that are most likely going to keep foreclosures front and center in the real estate marketplace through at least next year despite a slowdown in the rate of decline.

We’d be interested in whether you think these home price trends are long-term in your area or about to make a recovery.

Free-market purists have to love the lead in The Washington Post story Friday about the real estate market in Prince William County, Va., a suburb of Washington, D.C.

"Freewheeling American capitalism may be falling out of fashion on Wall Street, but in the western suburbs of Northern Virginia, it is driving one of the greatest home-buying sprees the region has ever seen."

The story goes on to say that Prince William County experienced a 235 percent year-over-year increase in home sales in September, with 1,116 homes sold -- more than any other September on record.

Fans of laissez-faire capitalism have been cringing through waves of massive government interventions over the past few weeks, but can point to what is happening in Prince William County as an example of how a real estate market can recover without the giant, bumbling hand of government reaching down to help.

In fact the county's surge in sales is occurring before any of the legislation passed in Washington (just a few miles down the road and across the Potomac River) over the past few months has filtered down to local communities. Most of the provisions in the mammoth housing rescue bill passed in July -- including $4 billion to buy up foreclosed homes, of which Prince William County has been allocated more than $4 million -- did not take effect until Oct. 1. And the deus ex machina promised as a savior in the recent $700 billion bailout bill has not yet materialized.

Of course there are costs to a free-market recovery, primarily decimated home values and loss of home ownership. The county's median price is down 41 percent from a year ago, from $405,000 to $239,000, according to the Post story. And neighborhoods that once comprised primarily owner-occupied homes have transformed into more transient communities as foreclosed homes were bought up by investors and converted to rentals.

But according investor Chris James quoted in the story, "bargain-hunting investors are the best hope for stabilizing foreclosure-ravaged neighborhoods."

Author and Investor Lance Young, who has authored several eBooks on buying foreclosures, lives near Prince William County and said he's purchased "several REOs and other properties since April 2008. I am rocking and rolling properties out here in the D.C. area." (More from Young and other investors who are in full buying mode in the November issue of the Foreclosure News Report.)

So is this pattern in Prince William County evidence that the free market is still capable of a healthy and sustainable recovery, or is it a temporary uptick before things once again get worse? Do we need a bigger, more monolithic solution from Washington to truly solve the problem?

Speaking before a packed house at the California Association of Realtors Expo 2008 in Long Beach, Calif., Wednesday, chief economist Leslie Appleton-Young seemed a bit uneasy as she delivered her 2009 California Housing Market Forecast.

“I bet everybody wants to know what’s going to happen next year. Me too!,” Appleton-Young told an anxious crowd of Realtors. “There are so many wild cards out there. It’s a full deck. They’re things we don’t have control over.”

Economics is not an exact science, so it is no surprise that practitioners will many times hedge their bet, and even revise their projections mid-year to stay in pace with changes as they occur. Many economists will even qualify their presentations by adding something like, “…unless some unknown monumental event occurs to change everything.”

Can you really blame them?

So far, 2008 has been the year of monumental events, beginning with the bailout of Bear Stearns, followed by the Lehman Bros. bankruptcy, Merrill Lynch selling to Bank of America, the federal government buying into the secondary market with the changes at Fannie Mae and Freddie Mac, and a number of banks either going out of business, or merging with other banks. Plus, let’s not forget a $700 billion stimulus package by the federal government aimed mostly at helping out troubled financial institutions to get banks lending money once again.

“It is really history in the making,” Appleton-Young said.

Given all those factors, and the uncertainty left in the marketplace, it was no doubt difficult to come up with a forecast for 2009, but Appleton-Young and her staff at CAR did a very admirable, and thorough, job of it. Based on the historic data she presented, it appears as if California is set to come out the other side in pretty good shape, probably by the second half of 2009 if no other major events change the nation’s — and the state’s — financial landscape.

The 2009 forecast calls for a further decline in home prices, down 6 percent for the year following a 32 percent decline this year. Existing home sales are projected to increase next year by 12.5 percent, a slight uptick from the 12 percent increase estimated for all of 2008, and a big improvement over the 26 percent decline seen in 2007, the market’s low point.

“Price behavior has been unprecedented,” Appleton-Young said. “Never before have we seen it go down so far so quickly. This is the third anniversary of seeing sales below where they were a year ago.”

In an interview with the Los Angeles Times, Appleton-Young noted that happy days were not here again for Realtors. Still, her prediction is overall upbeat, calling for the national economy to be at its weakest point during the next three quarters, with a turnaround during the second half of 2009.

Of particular interest to real estate investors is the high correlation between median prices and defaults. During her presentation, Appleton-Young noted that California currently has two distinct real estate markets — the REO market and the normal market. Because of that trend, it is a mistake to paint the state with a broad brush, she noted.

The median price discount was up in 2008, and so was the median number of weeks on the market. Correspondingly, net cash to sellers was down substantially, back to 2001 levels. As a result, she projected that the number of first-time home buyers entering the market will increase over the next couple of years, with everybody looking for a deal, along with favorable financing from FHA and the VA.

Even though she is projecting higher unemployment next year, Appleton-Young said she expects to see a lower number of foreclosures in California in 2009, although the number will still be significant.

The national economy in terms of Gross Domestic Product (GDP) will be weak (recession-like), with an improved outlook during the third and fourth quarters. And inflation will still be a problem.

The biggest market opportunities next year for real estate agents, Appleton-Young said, will be working with qualified first-time home buyers, and working DISTRESSED SALES, so long as they know the process and procedures involved.

What do you think? Are CAR’s projections too optimistic, too pessimistic, or just right?

In an unprecedented move aimed at quelling the mounting tidal wave of unrest affecting the world’s economies and investors, the Federal Reserve, in partnership with other central banks around the world, pulled off a coordinated reduction of short-term interest rates Wednesday.

Citing the recent intensification of the global financial crisis even while inflationary pressures are starting to moderate somewhat, the Fed, along with the Bank of Canada, the Bank of England, the European Central Bank, Sveriges Riksbank, and the Swiss National Bank, all announced rate reductions.

Ben Bernanke and his team at the Federal Open Market Committee took the federal funds rate down another 50 basis points (one-half a percent) to 1.5 percent. At the same time the FOMC decided to take the opportunity to move its discount rate down 50 basis points as well to 1.75 percent. Both reductions were unanimously approved.

In its official statement, the FOMC cited economic data suggesting that “the pace of economic activity has slowed markedly in recent months. Moreover, the intensification of financial market turmoil is likely to exert additional restraint on spending, partly by further reducing the ability of households and businesses to obtain credit.”

The New York Times reported Wednesday that in a speech delivered the day before to members of the National Association for Business Economics, Bernanke said the economic turmoil has caused the Fed to downgrade its “already-gloomy economic outlook.”

In fact, during that speech Bernanke made it clear that the housing market was a key factor in that outlook.

“Economic activity had shown signs of decelerating even before the recent upsurge in financial-market tensions. As has been the case for some time, the housing market continues to be a primary source of weakness in the real economy as well as in the financial markets,” Bernanke said. “However, the slowdown in economic activity has spread outside the housing sector. All told, economic activity is likely to be subdued during the remainder of this year and into next year.”

Until stock indexes around the world tumbled in recent days, many of the central banks thought this to be just an American problem with only secondary ripple effects in Europe, the Times reported.

Now not only stock indexes are being affected, but recent news reports have focused on foreclosure problems in other parts of the world. As this latest round of rate reductions tends to prove, problems with the housing market — including foreclosures — are not going to be a short-lived phenomenon.

Until the core problem with the housing and financial markets is solved, foreclosures will continue to be pervasive, offering opportunities for home buyers and investors to get into the market before it eventually turns around sometime in the next few years.

After all of this, one question remains to be answered in the near future:

Will Ben Bernanke be out of a job with the new administration in January? Or will he even want the job with all the challenges to his authority and wisdom he has faced during the time he has headed the Fed?

Anyone want to submit their resume now?

Home prices in 20 of the nation's major metro areas in July were collectively down 16.3 percent from a year ago, according to the S&P/Case-Shiller Home Price Index released today. Prices in those metro areas were down 19.5 percent from their peak in July 2006.

"There are signs of a slow down in the rate of decline across the metro areas, but no evidence of a bottom," said David M. Blitzer, Chairman of the Index Committee at Standard & Poor's, in a press release issued to announce the numbers. "Little positive news can be found when cities like Las Vegas and Phoenix report annual declines as large as -29.9% and -29.3%, respectively, and all 20 cities are still in negative territory on a year-over-year basis."

Las Vegas and Phoenix posted the two biggest annual declines in home prices of the 20 metro areas tracked in the report, followed by Miami with a 28.2 percent decline and Los Angeles with a 26.2 percent decline. Charlotte, N.C., home prices were down 1.8 percent from July 2007, the smallest annual decline among the 20 cities tracked in the report, followed by Dallas, which reported a 2.5 percent annual decline.

Does this make it a good time to buy real estate? June Fletcher of The Wall Street Journal sagely advises that the answer is "For some people, yes. If you ...

• have access to credit
• have fat cash reserves
• aren't already over-exposed in real estate
• have a secure job or income stream
• expect to hold the property for at least two years"

But be forewarned, prices are expected to fall further, and will take awhile to rebound, according to many economists.

"I think this time residential housing is in the 100-year flood, and I think it's going to take a long time to recover," said David Shulman, senior economist at the UCLA Anderson Forecast, at the Zelman & Associates Housing Summit in Dallas on Sept. 17.

Shulman said he expects home prices nationwide to go down 25 percent from peak to trough, although he acknowledged that prices could "overshoot to the downside." And while modest appreciation could resume in late 2009, prices won't be back to their 2006 peak until at least 2016, possibly as late as 2020 in some markets, according to Shulman.

(More from Shulman and several other leading economists in the October issue of the Foreclosure News Report, scheduled to be available in mid October.)

We'd like to hear from you when and if you plan to step in and start buying. Now, in 2009, or will you wait until 2020 when everyone has forgotten about this housing slump and is raving about skyrocketing home prices?

Peter Miller, author of the Common-Sense Mortgage, has offered up some alternatives to the proposed $700 billion bailout plan. Below are excerpts from an article he wrote about these alternatives.

"One alternative is to simply offer low-interest loans to borrowers who currently have toxic mortgages.

"Figures developed by Rick Sharga, senior vice president at RealtyTrac, show that the likely cost of low interest loans would be roughly $220 billion — hardly cheap, but a lot less expensive than the $700 billion plan now being discussed in Washington.

"Sharga's figures look like this:

"Some 2.5 million homes are likely to be in the "process of foreclosure" during the coming 12 to 18 months. If a typical home has an average sale price of about $220,000 (many homes now facing foreclosure were financed several years ago with two loans, thus first loans are often significantly less than current market values), and if the average mortgage is $176,000 (80 percent of market values) then the total value of such mortgages would be $440 billion. If the refinancing program was limited to half of the homeowners who will probably lose their homes to foreclosure, Uncle Sam would need to provide loans worth $220 billion.

"(Another) alternative idea works like this: Instead of replacing loans, give lenders an amount equal to 15 percent of the mortgage principal in exchange for concessions. In other words, current loans would stay in place, there would be no principal reductions and lenders would not be forced to sell their paper in the midst of a declining market.

"Imagine if the average cost to modify a loan — that is, reduce the interest rate to something fixed for 30 years with no reduction in principal — was 15 percent of the loan amount or $26,400 ($176,000 x 0.15). Lenders accepting this money now would have to modify each current mortgage to a fixed rate established by Uncle Sam as well as a renewed 30-year term.

"Borrowers in this scenario would be required to share future appreciation 50/50 with Uncle Sam until the entire $26,400 was paid back at the time of sale. If a property was sold and the entire amount was not repaid, the borrower would be required to pay $500 a year until the debt was fully paid off. In effect, the pay-off system would resemble the concept approved over the summer for first-time home buyers, a system which provides a $7,500 tax credit up front that must be repaid when the property is sold."

Read full article.

What do you think?

Financial analysts who were hoping for some downward movement on interest rates yesterday by the Federal Reserve were disappointed as Ben Bernanke and his merry band unanimously voted to do nothing.

Following what is now a familiar and conservative wait-and-see strategy towards the nation’s economy, and reactionary as usual, Bernanke and the Federal Open Market Committee left their short-term federal funds rate at 2 percent.

Later in the day the Fed made what had to be a highly anticipated move by the nation’s financial gurus, deciding to bailout AIG at the 11th hour before the world’s largest insurance company went bankrupt.

As for its decision on interest rates, in its official statement the FOMC justified its position, stating, “Strains in financial markets have increased significantly and labor markets have weakened further. Tight credit conditions, the ongoing housing contraction, and some slowing in export growth are likely to weigh on economic growth over the next few quarters.”

The New York Times commented today that the decision to keep the key rate where it is clearly demonstrates the Fed’s limited ability to solve a problem involving the nation’s housing and mortgage markets.

However, with concerns of inflation mounting, Stuart Hoffman, chief economist at PNC Financial Services Group told Investor’s Business Daily Tuesday that rate cuts are back on the table, especially if economic growth continues to slow down in the fourth quarter of the year.

Remarking on the Fed’s rescue of AIG, the Los Angeles Times commented this morning that it seems to be an “abrupt about-face” in position considering that the Fed did not bail out Lehman Brothers as it filed for bankruptcy protection (after having bailed out Bear Stearns earlier this year).

All of this rocking the boat may be making the nation’s financial markets a little queasy as the Fed decides which side its bread is buttered on. But it can’t be very settling for the nation’s homeowners either, as many more continue to face foreclosure in the coming months until a bottom of the market is clearly defined.

In the meantime, thanks to the waffling by the Fed, foreclosure is going to continue to be a dominant factor in the marketplace for the foreseeable future. Good news for wannabe homeowners looking for discounted properties, and a great time to be a real estate investor in most parts of the country.

Could a flood of foreclosures that began to swell last year be close to cresting? That could be a first-blush interpretation of the numbers in the RealtyTrac U.S. Foreclosure Market Report released today. The chart below shows how the annual rate of increase in all three foreclosure actions tracked in the report -- defaults, scheduled auctions and bank repossessions -- slowed in August.

The rates of annual increase in defaults and scheduled auctions have been steadily slowing down each month this year, but this was the first month in which the rate of increase in bank repossessions (REO) has slowed since the beginning of the year. That seems to indicate (and please forgive this somewhat rambling analogy) that the torrent of defaults that began in earnest about 18 months ago may be working their way down the foreclosure river and spilling into the ocean of bank-owned inventory -- while the number of new defaults being added upriver is moderating. But alas, that would be labeled by many as a naively optimistic interpretation, given the possibility of another downpour of defaults looming from as much as $500 billion in outstanding option ARMs, many of which are expected to recast to higher payments in the next three years.

In addition, one must be careful about reading too much into a decreasing rate of increase. It's a bit like a politician arguing that a new budget will decrease spending when it's actually just slowing the rate of increase in spending. After all, the RealtyTrac report does show that foreclosure activity continues to increase across the board -- defaults, auctions and bank repossessions. And both the total number of properties with foreclosure filings (more than 300,000) and the foreclosure rate (one in every 416 U.S. properties received a foreclosure filing during the month) were the highest since RealtyTrac began issuing the report in January 2005.

View state-by-state data