Indiana's ongoing foreclosure crisis.

• Author: Kinghorn, Matt R.

Many areas of the economy are finally showing signs of life. Here in Indiana, labor force data from March show that Hoosier employers added more than 50,000 jobs over the preceding 17 months and the state's unemployment rate was at its lowest point since late 2008. Despite this momentum in the broader economy, the housing market continues to struggle and its near-term direction seems as uncertain as ever.

Mortgage delinquencies and foreclosures are at the heart of the enduring housing troubles. This article will explore mortgage delinquency trends in Indiana and around the country and consider the factors that have fueled this crisis and why Indiana's historic foreclosure trend often deviates from that of the United States. Also, we will examine the impact of this issue on other aspects of the housing market and economy.

Foreclosures at Record Levels

States like Florida, Nevada and California have grabbed most of the national headlines concerning the housing bust and for good reason. As of the fourth quarter of 2010, Florida led the nation with over 19 percent of its mortgages being seriously delinquent (i.e., 90 or more days overdue or in foreclosure) followed by Nevada at 17 percent (see Figure 1). New Jersey, Illinois and Arizona also had marks above 10 percent. At the same time, Indiana's serious delinquency rate of 8.6 percent matched that of the United States and ranked 10th highest nationally, coming in just below Ohio and Michigan.

While Indiana and the United States have a comparable share of mortgages that are seriously delinquent, the state has typically had a higher rate of loans in the early stages of delinquency. As of the fourth quarter of 2010, 6.3 percent of all Indiana home loans were up to three months past due compared to 5 percent nationally (see Figure 2). The United States had a slightly higher rate of mortgages 90 or more days delinquent while the share of Indiana mortgages in foreclosure (4.8 percent) edged the U.S. mark (4.6 percent). These foreclosure rates are the highest on record for both Indiana and the nation. All told, 14.9 percent of Indiana mortgages were past due or in foreclosure at last measure compared to 13.6 percent nationally.

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Trends

Although Indiana and the United States currently have comparable foreclosure rates, the state's trend over the last two decades has rarely tracked the national rate. Indiana's foreclosure rate was well below the U.S. mark through much of the 1990s. At the low point from mid-1994 to mid-1996, Indiana's foreclosure rate averaged 0.5 percent compared to 0.9 percent for the United States (see Figure 3).

Indiana's rate began to rise steadily in late 1996 and truly soared, along with unemployment rates, at the onset of the recession in the early 2000s. The recession spurred an increase in the U.S. foreclosure rate too, but not to the extent seen in Indiana. More importantly, through the mid 2000s, the U.S. rate gradually returned to the 1 percent level while Indiana's remained elevated. However, the housing bust and ensuing economic downturn have pushed the U.S. rate up more than four-fold since 2007.

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