InnerBRIEFING City Economic Forum PAPER 2008
Foreclosures and the Inner City The Current Mortgage Crisis and its Inner City Implications
The Initiative for a Competitive Inner City (ICIC) is a national, not-for-profit organization founded in 1994 by Harvard Business School Professor Michael E. Porter. ICIC’s Mission is to promote economic prosperity in America’s inner cities through private sector engagement that lead to jobs, income and wealth creation for local residents. ICIC brings together businesses and civic leaders to drive innovation and action, transform thinking and accelerate inner city business growth and investment.
In 2007, 0.37% of the estimated national housing stock became the property of lending institutions.1 That is, for every 1,000 homes in United States, in 2007 almost four became “real-estate owned,” industry shorthand for residential properties whose ownership reverts back to banks or other mortgage holders. Real-estate owned (“REO”) properties are of particular concern because they often end up being sold at auction prices or worse, abandoned buildings that create blight, drive down property values, and undercut the local tax base. In a setting where the magnitude and contours of the foreclosure crisis are still taking shape, REO data provide an unambiguous measure of foreclosure activity and its impact on different types of communities.
Table 1. Foreclosure Statistics by Location % of Housing Units in REO
% of owner occupied Housing Units in REO
REO per square mile
Inner City
.63%
1.52%
9.2
Rest of Central City
.41%
.71%
2.3
Rest of United States
.31%
.48%
.2
Entire U.S.
.37%
.61%
.3
IC/Rest of City
1.5
2.1
4.0
IC/Rest of U.S.
2.0
3.0
38.4
Unfortunately, these data paint a troubling picture of the incidence of foreclosures in America’s inner cities.2 Data from the 100 largest US cities show that in 2007, the REO rate in inner city neighborhoods was twice as high (0.63% versus 0.31%) as in the r est of the United States. (See Table 1.) These data underscore two important aspects of the current crisis. The first is that urban areas have been disproportionately affected by the crisis: REO rates even in higher -income central city neighborhoods are 30% higher than in the rest of the United States (0.41% vs. 0.31%). Second, within urban areas, lower-income neighborhoods (i.e., inner city neighborhoods) have suffered much higher foreclosure rates than their higherincome counterparts: inner cities foreclosure rates are a full 50% higher than those in the rest of the city. The data suggest, then, that there is an urban component to the foreclosure crisis, but that within urban areas, there is a sharp demarcation between inner city and higher-income neighborhoods.
1
2
ICIC thanks RealtyTrac, which provided the foreclosure data used in this analysis, and Fannie Mae, which provided housing price data used in this analysis. A description of data sources and methods is outlined in a technical memorandum, “Foreclosures and the Inner City: Data Evaluation and Methodology.” ICIC Research, March, 2008. ICIC defines inner cities as core urban census tracts with 20% or higher poverty rates or that meet two of the following three criteria: poverty rate of 1.5 times or more that of their Metropolitan Statistical Areas; median household income of 1/2 or less that of their Metropolitan Statistical Areas; and unemployment rate of 1.5 or more that of their Metropolitan Statistical Areas.