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prices paid for land in recent sales are a clue to its intended future use. Market analysis which merely projects demand is of little value without knowledge of the aggregate decisions already made to supply it. Vacancy data has llmitations in that it measures conditions in the present, not the future. If vacancies rise, they indicate danger that already exists--but if they show no rise yet--there is no assurance that forces have not already been long at work to unbalance the market.

SUMMARIZING TE ISSUE ... Both the fact of the boom and the realistic evidence of high demand for rental housing are unquestioned It is not possible in a brief paper such as this to itemize or explore all the issues arising from the boom ... But the most serious question ... is the extent to which the boom is dependeni on artificial stimulants which are only vaguely sensitive to demand and whether or not this doesn't raise the possibility of substantial overbuilding of the rental market ... Overbuilding is a possibility, even with high demand ... because of the long lead time necessary between investmeat decision and realization of a stable market potential and because of the relative inflexibility to adjust the decision, once made If the danger is realistic ... it could upset the price structure for both the rental and sale markets ... with obvious serious impact--not confined to the housing industry-but pervading the whole fabric of the economy.

... for

These questions cannot yet be satisfactorily answered But the fact that they can be legitimately raised places cold, hard responsibility prudent action by investment decision-makers ... and for careful review by policy makers: government, trade association, and financial alike.

Competent market analysis should precede every major rental housing investmert decision ... and it should be used as a basis for actually making the decision

rather than to support a decision already reached (in cases where it confirms). The latter use of market analysis unfortunately occurs all too often while market analysis is not always perfect, most market analysts can cite numerous instances where the results of analysis were not heeded, though eventually proven correct after substantial financial loss.

... and

APPENDIX

Note on the Special Supplement

The text refers several times to various details to be

found in the Appendix. However, because of its size

and moderately technical nature, it was decided to put

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Special Repon

NATIONAL ASSOCIATION OF HOME BUILDERS N. H. ROGG-DIRECTOR OF ECONOMICS
AND POLICY PLANNING I MICHAEL SUMICHRAST-ASSISTANT ECONOMICS DIRECTOR
I NORMAN FARQUHAR-ECONOMIC ANALYST

Special Report 63-7

June 24, 1963

MORTGAGE FORECLOSURES

SUMMARY

Although the foreclosure rate for the nation as a whole continues to rise, it has not reached the danger level yet. But there are local situations where the foreclosure rate is too high in relation to the national rate causing some concern among people in the building industry.

Reasons for foreclosures are many : the most important one is the end of the inflation era. Some others:

poor credit selection, overestimating of market potential, unemployment, small equity, creation of national mortgage market, mobility, increase in consumer credit and others.

FHA experience shows that most of the foreclosures occur between the second and third years after purchase. If the house was held for more than four years, chances of foreclosure are considerably reduced.

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1935

o 1965

1940

1945

1950

1985

1980

O 1925

1930 • Amuol roto ist quorter SOURCE: Federal Home Loon Bank Boord

MORTGAGE FORECLOSURS ZATE STILL RISING

The number of forec iosures on non-farm properties continued the upwara climb of the last flu. years ia tiie first quarter of 1963, but at a slightly 3lower pace than in 1962. In the first three months, the foreclosures totales 23,07 units, or 12% above the same period of last year. 1962 foreclosures numbered 83,704, up 15% from tae 73,674 in 1961.

The number of foreclosures has been growing since world War II but so has the number of mortgaged homes. Comparing foreclosures as a per cent of mortsaged homes we can detect a slow and persistent increase from the low oi 1.11% in 1946 to 0.41% in 1962, and to 0.46% projectea for 1963. Ari analysis of the year-to-year increase for the last 10 years discloses an obvious fact: the largest jumps occurred during the recession periods (see Table I).

TABLE I

YEAR-TO-YEAR CHANGES OF MORTGAGE FORECLOSURES

Foreclosure Rate
Chanze in Per Cent

Foreclosure Number
Change in Per Cent

Year

+ 0.02%
+ 0.02%
+ 0.01%

1953-54 Recession

+

1953
1954
1955
1956
1957
1958
1959
1960
1961
1962
1963 *

+ 0.02%
+ 0.03%

+ 18.4%
+ 22.0

8.8
+ 8.5
+ 10.5
+ 23.9

4.0 + 16.5 + 42.3 + 14.5 + 19.5

1957-58 Recession

1960-61 Recession

+ 0.04%
+ 0.09%
+ 0.05%
+ 0.05%

* NAHB estimate

FHA AND VA FORECLOSURES HIGHER THAN CONVENTIONALS Since 1955 the FHA foreclosure rate has moved up from 0.21% of total insured mortgages to 0.89%, an increase of more than four times. Taking the 1958-1959 figures, the increase is even sharper: a rise from 0.11% in 1958 to 0.15% in 1959, and nearly doubling it every year since then.

VA foreclosure rate (claims paid) similariy moved upwards, reaching 21,860 in 1962, as compared to lú, 643 in 1959, and 3,719 in 1955. However, in 1962 the rate of paid claims as a percentage of outstanding mortgages was lower than the FHA rate. This is in contrast to the 1958-1960 period when VA rate was higher.

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