Foreclosures Overwhelm Rural Communities

In Dakota County, Minnesota, where there never used to be any foreclosures, the backlog of vacant, unwanted foreclosed houses sets a new record every month, overwhelming the resources of local government to address the health and safety problems they pose. Though August, the county held September 1,349 sheriff's sales. In 2008 the total was 2,063.

Like most of America, rural areas like Dakota County, southwest of Minneapolis and St. Paul, are suffering the blight of foreclosed properties. Unlike suburban or urban markets, however, few foreclosures in Dakota County were caused by risky loans. They result from unemployment and the local economic picture, which is strangling local governments and their ability to maintain the vacant housing stock left behind by laid off workers.

Like suburban areas, rural communities also are suffering the devastating impact of negative equity on their housing markets. According to Federal Housing Finance Agency (FHFA) figures, many rural homes did in fact experience price increases over the past few years; however, these gains were not as dramatic as their metropolitan counterparts. Subsequently, rural areas have not witnessed price declines as precipitous as those in urban locales but rural home prices still have decreased five percentage points from 2005 to 2008.

No one really knows the scope of the rural foreclosure situation. For the Neighborhood Stabilization Program to provide relief to local governments, HUD estimated some 738,000 rural mortgages entered foreclosure over the past two years, about ten percent of the national average. RealtyTrac, which does not collect data from the 900 counties with less than 10,000 residents according to a study by the Housing Assistance Council, identifies 76,369 homes in rural areas in the foreclosure process, about five percent of the national total. HUD's foreclosure data do not reflect actual foreclosures, but instead utilize neighborhood characteristics that estimate foreclosures. These factors are associated with a high level of risk for foreclosures and use composite indicators such as high cost loans, falling home values, above average unemployment, and delinquency and foreclosure estimates from an array of data sources. None of these estimates includes manufactured housing, a major source of rural dwellings. Nationwide, seven percent of all housing units are mobile or manufactured homes. In rural areas, however, that percentage doubles.

Only a revival of local economic growth will restore demand in rural housing markets, but better days not yet in sight. Creighton University's Mainstreet Economy index paints a grim picture. The index has remained below growth neutral for 20 consecutive months. The decline in farm income continues to weigh on the rural, agriculturally dependent economy with few signals that the economic downturn is coming to an end. Home sales remain frail, up slightly from September due to homebuyers tax credit.

In Dakota County's Burnsville, Ron Anderson has been an inspector of properties from 1999. He said that his section has been paralyzed with the sharp increase in foreclosed units. Earlier this year an ordinance was issued by the city addressing the employees of the department to attend to the issues arising out of foreclosed houses. The cost would be realized from special assessments made on the properties. But when the budget caused the staff to be reduced down from two full-time and one part-time worker to one inspector the workload became unmanageable. The ordinance came to be rescinded. The abandoned homes continue to crumble.