But the new numbers tell only part of the story. What they really demonstrate is that millions of homes remain distressed and that the foreclosure process itself continues to be troubled.

It was late in 2010 that the robo-signing scandal came to light, the practice of signing foreclosure affidavits without actually verifying that the claims were true. The result is that while most foreclosures are justified by non-payment some are not. The judicial system must now figure out how to repair improper foreclosures and — going forward — how to assure that no family is thrown out of their home without cause.

“Foreclosures were in full delay mode in 2011, resulting in a dramatic drop in foreclosure activity for the year,” said Brandon Moore, chief executive officer of RealtyTrac. “The lack of clarity regarding many of the documentation and legal issues plaguing the foreclosure industry means that we are continuing to see a highly dysfunctional foreclosure process that is inefficiently dealing with delinquent mortgages — particularly in states with a judicial foreclosure process.

“There were strong signs in the second half of 2011 that lenders are finally beginning to push through some of the delayed foreclosures in select local markets. We expect that trend to continue this year, boosting foreclosure activity for 2012 higher than it was in 2011, though still below the peak of 2010.”

Annual Results

There are two ways to view the market: properties impacted and foreclosure filings. Each measure has value as an index of marketplace activity.

Realtytrac says in 2011 that 1,887,777 U.S. properties faced foreclosure, a 34 percent decrease when compared with 2010. Foreclosure filings themselves — default notices, scheduled auctions and bank repossessions — fell almost 30 percent.

Going back to 2005, the annual foreclosure filing totals from RealtyTrac look like this:

In the past seven years almost 18 million foreclosure filings have been sent out. However, the actual number of impacted homes is substantially lower because borrowers often receive multiple notices for a single property.

December activity hits 49-month low, scheduled auctions up in fourth quarter

Foreclosure filings were reported on 205,024 U.S. properties in December, a decrease of 9 percent from the previous month and down 20 percent from December 2010. December’s total was the lowest monthly total since November 2007 — a 49-month low.

December Default notices (NOD, LIS) decreased 19 percent from the previous month and were down 23 percent from December 2010; Scheduled foreclosure auctions (NTS, NFS) decreased 12 percent from the previous month and were down 24 percent from December 2010; and bank repossessions (REO) increased 10 percent from the previous month but were still down 12 percent from December 2010.

Foreclosure filings were reported on 586,133 U.S. properties in the fourth quarter, a 4 percent decrease from the previous quarter and down 27 percent from the fourth quarter of 2010. Fourth quarter default notices were down 6 percent from the previous quarter and down 22 percent from the fourth quarter of 2010; scheduled foreclosure auctions increased 4 percent from the previous quarter but were still down 32 percent from the fourth quarter of 2010; and REOs decreased 11 percent from the previous quarter and were down 24 percent from the fourth quarter of 2010.

Nevada, Arizona, California post top state foreclosure rates for year

More than 6 percent of Nevada housing units (one in 16) had at least one foreclosure filing in 2011, giving it the nation’s highest state foreclosure rate for the fifth consecutive year despite a 31 percent decrease in foreclosure activity from 2010. Nevada foreclosure activity dropped 35 percent from the third quarter to the fourth quarter, driven primarily by a 70 percent decrease in default notices — the result of a new law (AB 284) that took effect in October requiring lenders to file an additional affidavit before starting the foreclosure process. The new law also increases the penalties for the use of fraudulent documents in foreclosure.

Despite a 28 percent drop in foreclosure activity from November to December — caused largely by a 41 percent drop in scheduled foreclosure auctions — Arizona registered the nation’s second highest state foreclosure rate for the third year in a row, with 4.14 percent of its housing units (one in 24) with at least one foreclosure filing in 2011.

California also experienced a substantial month-over-month drop in initial foreclosure notices in December — default notices there were down 38 percent from the previous month — but the state still registered the nation’s third highest foreclosure rate for all of 2011. One in every 31 California housing units (3.19 percent) had at least one foreclosure filing during the year, down from 4.08 percent in 2010 and 4.75 percent in 2009.

Georgia posted the nation’s fourth highest state foreclosure rate, with 2.71 percent of housing units (one in 37) with at least one foreclosure filing in 2011, and Utah posted the nation’s fifth highest state foreclosure rate, with 2.32 percent of its housing units (one in 43) with a foreclosure filing during the year.

Other states with 2011 foreclosure rates ranking among the nation’s 10 highest wereMichigan (2.21 percent), Florida (2.06 percent), Illinois (1.95 percent), Colorado (1.78 percent), and Idaho (1.77 percent).

Foreclosure processing timelines continue to increase

U.S. properties foreclosed in the fourth quarter took an average of 348 days to complete the foreclosure process, up from 336 days in the third quarter and up from 305 days in the fourth quarter of 2010. The length of the average foreclosure process has increased 24 percent from 281 days in the third quarter of 2010, when lenders began to re-evaluate foreclosure procedures in earnest as the result of the so-called robo-signing controversy.

The average foreclosure process in New York has increased 37 percent during the same time period, and New York properties foreclosed in the fourth quarter took an average of 1,019 days to complete the foreclosure process — the longest of any state.

New Jersey documented the nation’s second longest average foreclosure process, at 964 days, and Florida documented the nation’s third longest average foreclosure process, at 806 days. Foreclosure activity in both these states dropped more than 60 percent from 2010 to 2011. All three states with the longest foreclosure timelines employ the judicial foreclosure process.

Texas continued to register the shortest average foreclosure process of any state, at 90 days — still an increase from 86 days in the third quarter and from 81 days in the fourth quarter of 2010. Other states with average foreclosure process among the nation’s shortest in the fourth quarter were Delaware (106 days), Kentucky (108 days), Virginia(132 days), and Louisiana (134 days).

Top metro foreclosure rates

With 7.38 percent of its housing units (one in 14) with at least one foreclosure filing in 2011, Las Vegas posted the nation’s top foreclosure rate for the year among metropolitan statistical areas with a population of 200,000 or more.

Ten out of the top 20 metro foreclosure rates in 2011 were in California cities, led by Stockton at No. 2, with 5.43 percent of housing units (one in 18) with at least one foreclosure filing during the year. Other California cities in the top 10 were Modesto at No. 3 (5.29 percent), Vallejo-Fairfield at No. 4 (5.20 percent), Riverside-San Bernardino at No. 5 (5.16 percent), Merced at No. 7 (4.40 percent), Bakersfield at No. 9 (4.31 percent), Sacramento at No. 10 (4.17 percent), Fresno at No. 11 (3.82 percent), Visalia at No. 13 (3.67 percent), and Ventura at No. 16 (3.27 percent).

Other metro areas with foreclosure rates ranking among the top 20 were Phoenix at No. 6 (5.10 percent); Reno, Nev., at No. 8 (4.37 percent); Atlanta at No. 12 (3.69 percent); Prescott, Ariz., at No. 14 (3.50 percent); Cape Coral-Fort Myers, Fla., at No. 15 (3.29 percent); Greeley, Colo., at No. 17 (2.97 percent); Detroit at No. 18 (2.94 percent); Boise, Idaho, at No. 19 (2.85 percent); and Salt Lake City at No. 20 (2.81 percent).

All top 20 metro areas showed a decrease in foreclosure activity from 2010, and all butAtlanta posted a decrease from 2009. Atlanta metro foreclosure activity in 2011 was up 2 percent from 2009.

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The monthly figures should be seen as not especially meaningful as they can be impacted by factors as the weather, the length of the month and the number of federal holidays. The longer-term results dating back to 2007 give a more accurate presentation of national trends.

National trends, however, are themselves suspect — as are regional trends. The reason is that real estate is an intensely local commodity so what goes on regionally or nationally may not reflect local market patterns.

The December results by region look like this:

Pacific: +0.4 percent — Hawaii, Alaska, Washington, Oregon, California

Mountain: -1.3 percent — Montana, Idaho, Wyoming, Nevada, Utah, Colorado, Arizona, New
Mexico

West North Central: -0.2 percent — North Dakota, South Dakota, Minnesota, Nebraska, Iowa, Kansas, Missouri

West South Central:+1.6 percent — Oklahoma, Arkansas, Texas, Louisiana

East North Central -0.8 percent — Michigan, Wisconsin, Illinois, Indiana, Ohio

East South Central: +0.4percent — Kentucky, Tennessee, Mississippi, Alabama

New England: -0.2 percent — Maine, New Hampshire, Vermont, Massachusetts, Rhode Island, Connecticut

Middle Atlantic: -0.6percent — New York, New Jersey, Pennsylvania

South Atlantic: -1.3 percent — Delaware, Maryland, District of Columbia, Virginia, West Virginia, North Carolina, South Carolina, Georgia, Florida

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The final figures would actually have been worse had it not been for the foreclosure moratoriums and slow-downs caused by the still-simmering robo-signing scandal. In most cases the lower figures reflect delays and deferrals, foreclosures which will proceed once paperwork issues are cleared up and added to 2011 totals.

“Total properties receiving foreclosure filings would have easily exceeded 3 million in 2010 had it not been for the fourth quarter drop in foreclosure activity — triggered primarily by the continuing controversy surrounding foreclosure documentation and procedures that prompted many major lenders to temporarily halt some foreclosure proceedings,” said James J. Saccacio, chief executive officer of RealtyTrac. “Even so, 2010 foreclosure activity still hit a record high for our report, and many of the foreclosure proceedings that were stopped in late 2010 — which we estimate may be as high as a quarter million — will likely be re-started and add to the numbers in early 2011.”

Foreclosure Filings

Foreclosure filings — default notices, scheduled auctions and bank repossessions — slowed in 2010. This reduction also was related to procedural and paperwork issues, matters that are likely to be resolved in 2011.

Going back to 2005, the annual totals from RealtyTrac look like this:

___ 2010 — 3,825,637 foreclosure filings — down 3.45 percent.

___ 2009 — 3,957,643 foreclosure filings — up 21 percent.

___ 2008 — 3,157,806 foreclosure filings — up 81 percent.

___ 2007 — 2,203,295 foreclosure filings — up 75 percent.

___ 2006 — 1,259,118 foreclosure filings — up 42 percent.

___ 2005 — 885,468 foreclosure filings.

Trends

In terms of percentages, foreclosure filings increased the most in 2007 and 2008. However, the number of filings topped out in 2009 and would have been higher in 2010 had it not been for a fourth-quarter slow-down caused by paperwork concerns. Looking toward 2011, many marginal borrowers have left the marketplace and as we start the new year there’s evidence of some economic improvement. That said, home prices nationwide are down 14.5 percent from the April 2007 high.

Real estate — as always — is a localized commodity. That means while national trends are significant, buyers and sellers need to watch pricing patterns in local neighborhoods and communities, patterns which may not follow national swings.

Also, before home values can generally begin to rise the enormous inventory of foreclosed and distressed properties must be reduced. Steps such as a renewal of the tax credit for first-time home buyers and efforts to bring more small investors into the marketplace should be encouraged.

RealtyTrac also reported the following results for 2010:

Highest state foreclosure rates

More than 9 percent of Nevada housing units (one in 11) received at least one foreclosure filing in 2010, giving it the nation’s highest state foreclosure rate for the fourth consecutive year despite a 5 percent decrease in foreclosure activity from 2009. Nevada foreclosure activity in December increased 18 percent from the previous month and was up 14 percent from December 2009. Fourth quarter foreclosure activity in Nevada decreased nearly 7 percent from the previous quarter but increased 19 percent from the fourth quarter of 2009.

Arizona registered the nation’s second highest state foreclosure rate for the second year in a row, with 5.73 percent of its housing units (one in 17) receiving at least one foreclosure filing in 2010, and Florida registered the nation’s third highest foreclosure rate, with 5.51 percent of its housing units (one in 18) receiving at least one foreclosure filing during the year.

Other states with 2010 foreclosure rates ranking among the nation’s 10 highest were California (4.08 percent), Utah (3.44 percent), Georgia (3.25 percent), Michigan (3.00 percent), Idaho (2.98 percent), Illinois (2.87 percent), and Colorado (2.51 percent).

California, Florida, Arizona, Illinois and Michigan account for half of national total

Five states accounted for 51 percent of the nation’s total foreclosure activity in 2010: California, Florida, Arizona, Illinois and Michigan. Together these five states documented nearly 1.5 million properties receiving a foreclosure filing during the year despite annual decreases in the three states with the most foreclosure activity.

A total of 546,669 California properties received a foreclosure filing in 2010, a decrease of nearly 14 percent from 2009 but still the largest state total. After hitting a two-year low in November, California foreclosure activity rebounded nearly 15 percent higher in December but was still down 18 percent from December 2009.

Florida posted the nation’s second biggest total in 2010, with 485,286 properties receiving a foreclosure filing — a 6 percent decrease from 2009. Florida foreclosure activity in December hit the lowest monthly level since July 2007, down 22 percent from the previous month and down nearly 54 percent from December 2009.

A total of 155,878 Arizona properties received a foreclosure filing in 2010, a 4 percent decrease from 2009 but the third biggest state total for the third straight year. Arizona foreclosure activity in December jumped nearly 31 percent higher from a 32-month low in November, but was still down nearly 33 percent from December 2009.

Illinois posted the fourth biggest state total, with 151,304 properties receiving a foreclosure filing in 2010, and Michiganposted the fifth biggest state total, with 135,874 properties receiving a foreclosure filing during the year. Foreclosure activity in both states increased about 15 percent from 2009.

Other states with 2010 totals among the 10 biggest in the country were Georgia (130,966), Texas (118,923), Ohio (108,160), Nevada (106,160), and New Jersey (64,808).

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The New Rule

HUD says that under the new rule homes sold within the past 90 days may be sold again with FHA-backed mortgages. However, there are some caveats:

• All transactions must be arms-length, with no identity of interest between the buyer and seller or other parties participating in the sales transaction.
• In cases in which the sales price of the property is 20 percent or more above the seller’s acquisition cost, the waiver will only apply if the lender meets specific conditions.
• The waiver is limited to forward mortgages, and does not apply to the Home Equity Conversion Mortgage (HECM) for purchase program.

Specifics

Not just any old transaction will do within 90 days. According to HUD:

All transactions must be arms-length, with no identity of interest between the buyer and seller or other parties participating in the sales transaction. Some ways that the lender can ensure that there is no inappropriate collusion or agreements between parties is to assess and deternune the following:

a. The seller holds title to the property;

b. LLCs, corporations, or trusts that are serving as sellers were established and are operated in accordance with applicable state and Federal law:

c. No pattern of previous flipping activity exists for the subject property, as evidenced by multiple title transfers within a 12-month time frame (chain of title information for the subject property can be found in the appraisal report);

d. The property was marketed openly and fairly, via MLS, auction, For Sale by Owner offering, or developer marketing (any sales contracts that refer to an “assignment of contract of sale,” which represents a special arrangement between seller and buyer may be a red flag).

20% Price Increase

HUD remains very much on the look-out for illegal flipping and one way it does this is to look for price increases of 20 percent or more. The idea is not that there’s a limit on price increases, rather the increase must be justified.

For those who fix up homes this is a problem because legitimate price increases of 20 percent and more may well justified by repair and renovation work. Since the onus is on the seller to justify a higher price, owners should hang on to receipts and have plenty of before and after photos to show lenders if necessary.

Here’s what HUD says:

In cases in which the sales price of the property is 20 percent or more over and above the seller’s acquisition cost, the waiver will only apply if thc lender:

a. Justifies the increase in value by retaining in the loan file supporting documentation and/or a second appraisal which verifies that the seller has completed sufficient legitimate renovation, repair, and rehabilitation work on the subject property to substantiate the increase in value or, in cases where no such work is performed, the appraiser provides appropriate explanation of the increase in property since the prior title transfer; and

B. Orders a property inspection and provides the inspection report to the purchaser before closing. The lender may charge the borrower for this inspection. The rise of FHA-approved inspectors or 203(k) consultants is not required. The inspector must have no interest in the property or relationship with the seller, and must not receive
compensation for the inspection from any party other than the lender. Also, the inspector may not compensate anyone for the referral of the inspection. Additionally. the inspector may not receive any compensation for reffering or recommending contractors to perform any repairs recommended by the inspection, and may not be involved with performing any repairs recommended by the inspection. At a minimum, the inspection must include:

i. The property structure, including the foundation, floor, ceiling, walls and roof:

ii. The exterior, including siding, doors, windows, appurtenant structures such as decks and balconies, walkways and driveways:

iii. The rooting. plumbing systems, electrical systems. heating and air conditioning
systems;

iv. All interiors: and

v. All insulation and ventilation systems, as well as fireplaces and solid-fuel-burning appliances.

So why does HUD have a 90-day anti-flipping rule in the first place? Ah, therein lies a tale….

Baltimore

In basic terms the rule was designed to limit the ability of illegal flippers to quickly turn over properties. The rule arose several years ago after HUD discovered that it was the owner of hundreds of illegally flipped homes in Baltimore, homes financed with FHA mortgages which soon defaulted. The result was lots of claims against the FHA system by the lenders who made such loans. HUD lost millions of dollars.

The hallmark of these sales was that home values quickly rose. A home could be sold several times, maybe several times in a day, and somehow the value magically rose. The higher sale value — supported by somehow appropriate appraisals and paperwork — could be financed with a larger loan. When FHA financing was used it meant that HUD had insured loans secured by properties which were grossly overvalued.

The result of the Baltimore experience was that the government created the 90-day rule in 2003 in an effort to stop illegal flipping. Under the rule, said HUD, “if a property is re-sold 90 days or fewer following the date of acquisition by the seller, the property is not eligible for a mortgage insured by FHA. FHA defines the seller

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The bloated foreclosure numbers are in large measure a by-product of the more than 7.2 million jobs lost since December 2007 and the huge numbers of toxic loans issued by lenders from 2004 through 2007. Unfortunately, foreclosure totals in 2010 will likely be similar to the numbers seen in 2009.

Going back to 2005, the annual totals from RealtyTrac look like this:

___ 2009 — 3,957,643 foreclosure filings — up 21 percent.

___ 2008 — 3,157,806 foreclosure filings — up 81 percent.

___ 2007 — 2,203,295 foreclosure filings — up 75 percent.

___ 2006 — 1,259,118 foreclosure filings — up 42 percent.

___ 2005 — 885,468 foreclosure filings.

It Could Have Been Worse

“As bad as the 2009 numbers are, they probably would have been worse if not for legislative and industry-related delays in processing delinquent loans,” said James J. Saccacio, chief executive officer of RealtyTrac. “After peaking in July with over 361,000 homes receiving a foreclosure notice, we saw four straight monthly decreases driven primarily by short-term factors: trial loan modifications, state legislation extending the foreclosure process and an overwhelming volume of inventory clogging the foreclosure pipeline.

“Despite all the delays, foreclosure activity still hit a record high for our report in 2009, capped off by a substantial increase in December,” Saccacio continued. “In the long term a massive supply of delinquent loans continues to loom over the housing market, and many of those delinquencies will end up in the foreclosure process in 2010 and beyond as lenders gradually work their way through the backlog.”

December Foreclosure Filings Up

Foreclosure filings, says RealtyTrac, “were reported on 349,519 U.S. properties in December, a 14 percent jump from the previous month and a 15 percent increase from December 2008 — when a similar monthly jump in foreclosure activity occurred. Despite the increase in December, foreclosure activity in the fourth quarter decreased 7 percent from the third quarter, although it was still up 18 percent from the fourth quarter of 2008.”

There might be some reason to believe that the December numbers would have been lower because foreclosure levels had fallen during the four prior months and a number of lenders had instituted eviction moratoriums at year end. However, as pointed out here, stopping evictions is not the same thing as stopping foreclosures.

Major Foreclosure States

RealtyTrac says that “four states accounted for more than 50 percent of the nation’s 2009 total, with more than 1.4 million properties receiving a foreclosure filing in California, Florida, Arizona and Illinois combined.”

There has been some effort to explain that today’s foreclosure levels would not be so high if we did not count the worst-hit states. However, unless they secede from the Union, these states are part of the United States and their foreclosures are part of the national total. Moreover, as RealtyTrac reports, “2.21 percent of all U.S. housing units (one in 45) received at least one foreclosure filing during the year, up from 1.84 percent in 2008, 1.03 percent in 2007 and 0.58 percent in 2006.”

What’s surprising about the 2009 results is that there have been massive increases in foreclosure filings during the past two years in some unexpected areas such as New England, South Carolina, Idaho

This gross increase in foreclosure activity is happening in many states. RealtyTrac reports major growth during the past year in:

___ Alabama (up 156.26%)

___ Hawaii (up 182.64%)

___ Idaho (up 101.61%)

___ Mississippi (up 135.59%)

___ West Virginia (up 115.91%)

Happily, there were some states where foreclosure levels fell according to RealtyTrac:

___ Connecticut (down 10.24%)

___ District of Columbia (down 22.64%)

___ Indiana (down 9.87%)

___ Massachusetts (down 18.54%)

___ Missouri (down 8.75%)

___ Nebraska (down 42.16%)

___ North Carolina (down 16.07%)

___ Ohio (down 10.53%)

___ Rhode Island (down 23.06%)

Looking back over the past two years, RealtyTrac says some states actually did fairly well — while others saw huge increases in foreclosure filing activity:

___ North Carolina (foreclosure filings were down 2.46%)

___ Nebraska (down 49.26% — the best in the nation)

___ Alabama (foreclosure filings were up 257.07%)

___ Arizona (up 323.17%)

___ The District of Columbia (up 316.34%)

___ Hawaii (up 831.88%)

___ Idaho (up 371.46%)

___ Kansas (up 272.06%)

___ Maine (up 1,011.19%)

___ Mississippi (up 283.39%)

___ New Hampshire (up 482.39%)

___ Oregon (up 303.27%)

___ South Carolina (up 492.49%)

___ South Dakota (up 3,087.50%)

___ Vermont (up 393.10%)

What About 2010?

The view here is that 2010 will largely echo 2009. Why? Continuing high levels of unemployment and continued fallout from the toxic loan era. In particular, watch the delinquency and foreclosure rates for option ARMs. For my specific predictions for next year — and why I am making such forecasts — please see: Real Estate 2010 — Will It Be Better?

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This is an unhappy statistic, but it does not tell the whole story. First, as the FBI explains, “the total dollar loss attributed to mortgage fraud is unknown.” This makes much sense given that fraud cannot be known until it’s uncovered — think of Bernie Madoff, Enron and Worldcom.

Second, there’s no central repository to collect mortgage fraud complaints thus the counting and definitions of one source may be different than another.

Third, and most importantly, the FBI report does not cite ONE instance of predatory lending.

Could it possibly be that in a one-year period there was not a single predatory loan issued anywhere in the US?

You’re kidding, right?

Predatory Lending Is Not A Federal Crime

The reason there are no predatory loan statistics in the FBI report is very simple: Although most mortgages originate from nationally-regulated lenders, predatory lending in not a federal crime so there are no statistics to report.

As Benny Kass explains, “there are no federal laws making predatory lending illegal.– Kass is a long-time real estate columnist with The Washington Post and a well-regarded real estate attorney.

In other words, if you make a material misstatement, misrepresentation, or omission on a loan application that can be regarded as mortgage fraud. However, if a lender sells a subprime loan to a family that qualifies for a prime mortgage and increases their housing costs by thousands of dollars per year, that’s just dandy — even if it drives them into foreclosure and bankruptcy. No crime there, no obligation to do what is best for the borrower.

Suspicious Activity Reports (SARs)

The FBI report reflects Suspicious Activity Reports (SARs) rather than actual fraud cases. Given that millions of loans are originated each year the number of fraud prosecutions is tiny. As the FBI reports, last year — in fiscal 2007 — there were 1,204 mortgage fraud cases. They produced 321 indictments and 260 mortgage fraud convictions.

The point, of course, is that the FBI cannot go after predatory lenders if predatory lending is not a crime. Can you guess which industry has worked zealously to assure that mortgage fraud is an issue — but predatory lending is not?

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Bigger homes, of course, require more dollars to buy, finance, refinance, insure, heat, air condition, and carpet. The equation is bigger homes = bigger mortgages — and we all know how bigger mortgages impact monthly payments.

It’s not just that we have more interior area, we have also packed more features into today’s houses including, says the NAHB, whirlpool bathtubs, gas fireplaces, gourmet kitchen appliances, state-of-the-art home security systems and low-maintenance exterior materials, make new homes more comfortable and livable than ever. Also, homes built today are also more energy efficient. In fact, new homes are about twice as energy efficient as new homes were just 20 years ago.”

In most communities you can almost date the housing stock by the size of local palaces. The trend seems to be massive footprints on small lots — an approach which creates a lot of interior square footage with little exterior space to maintain.

At a time when there is a strong need for affordable housing, huge and expensive homes are virtually required by the economics of land acquisition. You can’t build small and cheap in most metro areas because the cost to acquire and develop property is so great. In addition, zoning ordinances and minimum lot sizes assure an effective housing shortage in many areas — thus a major reason for rising prices.

People with large holdings and big incomes have choices while those on the cusp of subsistence do not. The failure of our housing market is that we are very good at plans, restrictions and zoning — and not so good at affordable housing. We’ve taken the reward motive out of affordable housing because builders in many communities cannot profitably-construct cheap homes and still meet zoning requirements.

But less expensive homes are possible, sensible and necessary. Smaller lots combined with smaller homes can certainly be built — if allowed. And such homes can easily work for many households: Just look at the typical home sizes from five decades ago — and then look at the number of occupants per house. According to the Census Bureau, the average household had 3.37 people in 1950 — and 2.56 people in 2007.

What we have now are fewer people per household and cavernous, echo-filled structures in which they are housed. This makes little sense in terms of land usage, energy consumption, environmental issues or cost.

Today we increase home values by limiting supply, a better approach would be to increase home prices by enlarging the pool of qualified buyers. We’d have more buyers if we had more affordable housing, homes that can appreciate in value and allow owners to build equity, increase household wealth over-time and re-enter the marketplace as move-up buyers.

As an owner it’s in your self-interest to want the largest possible pool of move-up buyers, a group that represents some 60 percent of the existing home marketplace. Increase the number of move-up buyers and your home is likely to sell faster and for more money. The catch is that you can’t have move up-buyers unless they have properties to replace — thus the need for affordable housing.

Community planning today favors the upwardly mobile, the already settled, growing congestion and a numbing architectural sameness. We are using land regulation to limit affordable housing at the very same time we claim that affordable housing is an attractive and desirable goal — except where we live.

————————
Published originally by Realty Times on October 24, 2003 and posted with permission.

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