Written by Chris Norwood, NAI Norwood Group
In November of 2011, there was a four year dip in the total
number of foreclosures in the US. In January of this year, real estate research
firm Realty Trac forecasted that 2012
would be a big year for foreclosures across the nation. They cited fourth quarter
2011 process delays as well as the “robo signing” scandal of possible reasons
why properties that should have been foreclosed on in 2011, would be closed in
this year. Here we are wrapping up 2012 and we must ask: what is taking place
with foreclosures and what is going on in commercial foreclosures?
Let us begin with the New Hampshire macro foreclosure
market. Do you remember those days, when no one worried about that word. In
2004, the foreclosure rate (Total number of foreclosure deed transfers divided
by total transfers), was at a 17 year low. Less than one percent of all deed
transfers in the state were through a foreclosure. Foreclosures continued to
rise breaking the 10% barrier in 2008 and peaking in 2010 at over 16%. That is
one out of every six real estate transfers. A large number.
Since that time foreclosure rates have been flat. 2011
clocked in just under 16% and 2012 looks to be about the same forecasted from
the first 10 months of the year. In New Hampshire we have seen home sales begin
to climb. In September of this year the New Hampshire Association of Realtors
announced that they had seen eight double digit straight months of home sale
increase month over month. In addition median home prices were leveling. So
while foreclosures continue to remain in the forefront of real estate
discussions, they are not increasing here in the Granite State.
On the commercial front, experts from across the nation are
viewing things differently. While there are currently billions of dollars of
outstanding debt across the nation that may be considered “troubled” we need to
place that in context. In a residential foreclosure process, when a homeowner
falls behind on payments, the long process has begun a foreclosure. Along the
way there are many options to avoid that pitfall such as short sales. In the
end when a short sale or foreclosure happens the result is the current occupant
probably vacates. In the commercial process much of the troubled debt in the
market is underwritten on projects that are leased as investment properties to
other tenants. This is important because the underlying asset still may have
cash flow and may have value. As a result commercial property tends to be less
likely to foreclose as it is to have the note sold or to have another investor
come and pick it up.
This is not to say that commercial foreclosures cannot
happen. Historically, commercial real
estate trends 12-24 months behind residential. In 2008 all foreclosures in the
state were around 14% but commercial properties were being foreclosed less than
9%. The following year, commercial was back on par with the rest of properties
at 14%, a 12 month lag. However, in New
Hampshire we have then bucked that tend. Since 2010 the commercial foreclosure
rate has been falling and this year it is projected to end somewhere back
around that 9%, despite the statewide rate being around 16%.
Forecasting from here is not easy; however the decrease in
foreclosures in commercial property is probably more attributed to the improved
job numbers and the fact that the health of New Hampshire is strong. Large
properties with syndicated debt still may be in trouble, but local lenders are
doing what they can to work with property owners who are in trouble. While there are outside factors such as the
“Fiscal Cliff” that loops for our federal delegation, the local prospect seems
positive. We see a marginal lowering of
the foreclosure rate for all property in New Hampshire for next year.
