THE NOTORIOUS RENO DRUNK AND THE HOUSING-MARKET HANGOVER
In 2006, the New Yorker published a Malcolm Gladwell story headlined “Million Dollar Murray.” It profiled Murray Barr, an affable, mostly toothless homeless man who had cost the city of Reno, Nev., hundreds of thousands of dollars in hospital bills, substance-abuse-treatment costs, ambulance transportation and much more over the 10 years he’d lived on its streets.
It was a beat cop named Patrick O’Bryan — who’d spent years picking Murray up after drunken binges — who tried to tally up the cost of the man’s cycles in and out of the system. “It cost us one million dollars not to do something about Murray,” O’Bryan told Gladwell.
The chart above shows the million-dollar Murrays of the housing market. It uses data from Black Knight to plot repeat foreclosures — those loans that have gone through the foreclosure process more than once — and when they were taken out. Looked at one way, it’s a perfect visual representation of the housing bubble: It crests in 2006, the exact moment a lot of other housing-related trends peaked, and falls off after that.
Looked at another way, it represents the hard-luck cases that are sapping resources and “muddying the picture” of how healthy the housing-finance system really is, in the words of Daren Blomquist, a vice president at Attom Data Solutions, which tracks real-estate trends including foreclosures.
“It may be surprising to some folks that we’re still dealing with the long tail of distress from that boom-and-bust scenario,” Blomquist said.
Read on: The new housing play: helping priced-out renters become long-distance landlords
MarketWatch has spoken frequently with Blomquist about lessons learned from the housing bust, and about how to deal with the distress it caused. Late last year, taking note of the surge in home equity even in places that were hit hard by the downturn, he said that distressed homeowners often had “a sense that it was financially smart to cut their losses and just walk away, but in many areas of the country we’ve seen home prices exceed their pre-recession peaks. If they could have just stuck it out, they would have built wealth.”
But for those homeowners who could not avoid foreclosure, Blomquist said, “there could be an argument that trying to save these loans has cost more not just in terms of money but in terms of dragging down the housing market.”
Different states take different approaches to dealing with foreclosures. Some, in Blomquist’s words, “rip the Band-Aid off and let the bad loans go bad and be resolved more quickly.” Others have required that foreclosures go through a court process in order to offer more protections to homeowners, a step that usually winds up taking years. That approach, as Blomquist put it, “seems laudable but one with unintended consequences of dragging on the system and maybe draining resources from state housing programs.”
See: Here are the winners and losers as the foreclosure crisis slogs into extra innings
For the housing market, one way of trying to “solve” the foreclosure crisis was seeking to guarantee that level of distress never occurred again — or did so as infrequently as possible. That’s led to incredibly tight lending practices since the crisis, a reaction that most housing-industry participants view as having been too strong.
Even with an elevated number of repeats, the total number of new foreclosure starts in 2017 was far lower than in the pre-bubble years, at roughly one-fifth the level of 2003, for example.
Understanding that more risk is, well, more risky, Blomquist noted, “We’re at a point in the cycle right now where a little more risk in lending is beneficial for the industry, and also beneficial for prospective homeowners who’ve been locked out of the market up to this point.”
Read on: Mortgage lending is so tight, more people aren’t even bothering to apply