N.Va. Foreclosures Form 'Ring of Fire'

Chain of Housing Crisis Hot Spots Indicates Disparity in Market Downturn

By Nick Miroff

Sunday, March 23, 2008

When foreclosure specialist John Thompson looks at a map of Northern Virginia, he sees a flaming archipelago that stretches from Dumfries to Sterling. Parts of Dale City, Woodbridge and Herndon are engulfed; Manassas and Manassas Park are "a volcano."

Thompson calls this the "ring of fire," Northern Virginia's foreclosure belt. And although hardly a scientific model, it illustrates the geographic pattern of the region's housing distress.

As the surge in foreclosures continues and banks repossess more and more houses, property values are declining — but not everywhere, and not by equal measure, Thompson and other real estate agents said. No part of the region is untouched, but most foreclosures are clustered in certain neighborhoods and several troubled Zip codes. Rather than a sea of slumping housing, Northern Virginia has an island chain of hot spots.

"It's really limited to the ring of fire," said Thompson, an agent with Samson Realty who specializes in REO, or "real estate owned," properties. "There is no foreclosure crisis in McLean, Great Falls, Vienna, Oakton, Fairfax Station and most postal areas of Northern Virginia," he said.

In those areas, prices have dipped slightly, remained stable or, in some cases, increased. Average sale prices in some Arlington County neighborhoods have risen 7 percent in the past year, and one McLean neighborhood's average price has increased 13 percent.

But drive with Thompson through the hardest-hit areas of Prince William County — the epicenter of the region's foreclosure trouble — and the loss of value has been precipitous.

"That one's listed at $125,000," Thompson said one recent afternoon, sizing up a dowdy green rambler in Manassas Park that had been foreclosed on. It wasn't the fanciest house on the block, but it wasn't a shack. Two years ago, homes in the neighborhood were selling for $300,000 to $400,000, Thompson said.

On a tour of Manassas and Manassas Park, Thompson pointed to telltale signs of foreclosure: utility notices posted on windows, newspapers yellowing in the driveway, realty signs staked in the lawn. On some blocks, every third or fourth house sat empty.

The losses in value have been extreme. A townhouse in Manassas was being offered at $94,900 even though it was assessed at $253,900. Dozens of bank-owned properties were listed for less than $150,000, far below their assessed worth.

"Banks are slashing prices, and that's causing value of properties to go down with every sale," Thompson said, noting that every time a bank unloads a house at a steep discount, it further devalues other houses in the area that it might also own, fueling the downward spiral.

Still, only a small portion of Prince William homes are in foreclosure, he and others said. There were 3,344 foreclosures in Prince William last year, according to county data, up from 282 in 2006 and 52 in 2005.

A report by economist Stephen Fuller of the George Mason University Center for Regional Analysis found that 5.5 percent of Prince William housing units were in some state of foreclosure by mid-February, a rate twice that of Loudoun County's, Northern Virginia's second-highest. No major metropolitan area in the country had a foreclosure rate that high in the last quarter of 2007 — not even Detroit — according to Fuller's data.

By and large, those properties are concentrated in lower-priced areas and Zip codes where many immigrants bought homes in recent years, often with subprime mortgages and other risky arrangements that required little down payment or documentation. In Northern Virginia and especially Prince William, many buyers were Hispanic immigrants.

"With the Hispanic community, we had a huge boom in the last few years," said Jose L. Galdos, who recently shut down his settlement company in Woodbridge and laid off his staff, having lost 85 percent of his business in the past year.

"A lot of them had adjustable rates," he said. "A lot of them are walking away from those mortgages now."

Thompson, Galdos and several other real estate specialists in Northern Virginia estimate that 70 to 80 percent of foreclosure cases they see involve Hispanic families. The number of Hispanic surnames in the trustee notices in the classifieds sections of area newspapers appears to confirm the observation.

"What they tried to do was smart. You can't make it in America unless you get into home ownership," Thompson said. "But their timing was bad. They bought at the end of the boom. They were pursuing the American dream, and now it's crashing down around them like an American nightmare."

With the interest rates on adjustable-rate mortgages escalating and job opportunities for immigrants squeezed by a construction slowdown, many families are simply walking away, sacrificing their credit to save their finances.

"Most of the people I deal with are responsible people who are trying to find a way out," Manassas real estate agent Maribel Alvarez said. "Some of the banks are willing and do not want to foreclose on a home, but they're very limited because the homes are so far off what the person owes."

Real estate agents say the foreclosure crisis in Prince William has been exacerbated by local authorities' efforts to crack down on illegal immigrants. They warn that the campaign might have other, more far-reaching economic consequences if homeowners continue to default.

Whether out of fear or the perception that they are no longer welcome, Latino families who were already struggling financially have little incentive to fight to remain in their homes. Anecdotes abound of Hispanic immigrants leaving the county for Maryland or the Carolinas.

"What can I do? I've got no choice," said Jose Ruiz, 27, a landscaper and illegal immigrant from El Salvador who bought a Manassas condo two years ago for $200,000. He has been making $2,000 monthly payments for his mortgage and condo fees since then, spending most of his monthly income and all his savings. He and his wife worry that they'll be deported or separated from their daughters, ages 3 and 1. But they can't sell their condo, which Ruiz estimates is worth $130,000 in the current market. So they're planning to walk away rather than risk a forcible removal.

Finding enough buyers to absorb the foreclosed properties remains a challenge, and some real estate companies are using gimmicks to lure investors, including "home buyer bus tours" of Prince William neighborhoods. "Don't miss the bus!" touts a flier for a tour that offers a rolling foreclosure seminar.

But market watchers say the foreclosure wave in Northern Virginia will have to run its course before prices can normalize. "The correction will continue, but foreclosure properties will be out of the listing pool," said Jill Landsman, a spokeswoman for the Northern Virginia Association of Realtors.

For most Northern Virginia homeowners, Landman urged patience, emphasizing that many parts of the region were holding their value. "Every neighborhood has its own DNA," she said. "Some neighborhoods are really solvent because of land value, while some are more susceptible to foreclosure activity."

As a whole, she noted, the Washington region was doing much better than other parts of the country, mostly thanks to low unemployment. "All the local fundamentals remain strong," she said.

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