Tightening credit and a cooling real estate market are the main drivers behind a 12 percent rise in foreclosures in Spokane County in 2007, although local observers say the higher foreclosure numbers here still would be the envy of much of the country.


Foreclosures on deeds of trust in Spokane County totaled exactly 300 in 2007, up by 31 from 2006, which, at 269, had the lowest number in a decade, the Spokane County auditors office says.


The 2007 bounce in foreclosures follows a four-year decline from a peak of 1,152 foreclosures here in 2002. Last years total was the second lowest since 1996, when there were 220 foreclosures, which was followed by a six-year upward trend.


Phil Kuharski, a retired securities executive and longtime observer of the Spokane-area economy, says he expects foreclosure numbers here to increase again this year and in the following years to more normal levels.


For a county the size of Spokane County, 350 to 400 foreclosures a year is the standard model, he says. Around 400 foreclosures wouldnt alarm me; 800 to 1,000 foreclosures would alarm me.


Kuharski says he wouldnt be surprised to see a continued rise certainly in the 10 percent to 15 percent range in foreclosure numbers in the next year or two.


In Kootenai County, the jump in foreclosures last year was far more severe. During the first nine months of the year, the most-recent period for which numbers are available, 472 foreclosure actions were started, up 84 percent from the same period in 2006. Last year was the second consecutive year that foreclosure actions grew there, following a downward trend from a peak of 781 foreclosure actions started in 2001.


Kootenai Countys foreclosure statistics, which are compiled by Coeur dAlene-based Pioneer Title Co. of Kootenai County, are reported differently than Spokane Countys, and not all actions reported in Kootenai County result in final foreclosure.


Overall in the Spokane-Coeur dAlene market, strong job growth and home values that rise faster than debt generally combine to provide somewhat of a hedge against high foreclosure rates, and those factors still could be in play here, says Randy Barcus, chief economist for Spokane-based Avista Corp.


In Spokane County, the median home price rose 6 percent last year to $185,400, from $175,000 in 2006, says the Spokane Multiple Listing Service. That, however, was the lowest rate of increase since 2002, and the number of homes sold in Spokane County last year fell to 6,585 from 7,246 in 2006.


Barcus cautions that the residential real estate market has cooled from the red-hot peak of 2005, and last years increase in the median selling price might not be indicative of a corresponding increase in overall property values.


Continued job growth in here, however, indicates that housing-related real estate will remain in demand, which could keep property values at stable levels and provide some protection against runaway foreclosures, Barcus says.


In the 12 months from December 2006 through November 2007, 5,100 jobs were added here for a job-growth rate of 2.3 percent, says Jeff Zahir, the Washington state Employment Security Departments Spokane-based regional economist. Wages in Spokane County rose 4.6 percent from July 1, 2006 to June 30, 2007, the most recent full-year period for which Zahir has complete wage information.


Prior to 2006, the last cycle in which Spokane Countys annual foreclosure numbers remained below 400 was during the seven-year period from 1990 to 1996.


During that time, Spokane had very strong house values, credit quality was better, and the job market was stable, Barcus says. Usually, foreclosure cycles run inversely with the job growth.


This time around, however, the upturn in foreclosures seems to be caused by a credit squeeze, rather than the job market, he says.


Kuharski says he doesnt believe Spokane will see foreclosure rates as high as those being seen in other parts of the U.S., where aggressive subprime lending helped fuel skyrocketing housing prices, and where credit is now tightening as home values are falling. In those places, a greater number of borrowers cant make their mortgage payments and cant sell their homes for what they owe, he says.


The national rate of residential loans in foreclosure, 1.69 percent as of Sept. 31, was the highest since 1986, says the Mortgage Bankers Association, a Washington, D.C.-based national organization that represents the real estate finance industry. The organization says it doesnt expect foreclosure actions to peak nationally until the third quarter of this year.


Some of the highest concentrations of foreclosure actions are in the states of Michigan, Indiana, Ohio, Florida, and California, the association says.


Closer to home, foreclosure rates in Washington states West Side population centers of King, Pierce, and Snohomish counties, which range from 0.49 percent to 1.1 percent, were well below the national rate, says Default Research Inc., a Mount Pleasant, Pa.-based company that compiles foreclosure real estate data.


Doug Beaudoin, senior vice president and manager of the mortgage department for Spokane-based Inland Northwest Bank, also doesnt expect foreclosures to increase here as fast as they have in markets where subprime mortgages were more prevalent.


We as a community didnt participate in a lot of that razzle-dazzle with teaser rates, Beaudoin says. Spokane is going to come out better for it.


Although it might appear to some that its becoming harder to obtain loans, interest rates still are relatively low, he says. Lenders are going back to the basics of traditional underwriting, which require borrowers to show proof of dependable income, that they are making some investment in the home, such as a downpayment, and that they have reasonably good credit, he says, adding, Its no different from 10 years ago.


Kuharski says the big question here is: Where is Spokane in the big mess of tightening credit?


He says home-lending standards here tend to be more conservative than in most of the country, and that should protect the Spokane area somewhat from high foreclosure levels occurring elsewhere.


Also, property values here have been more consistent than in other parts of the country, where some properties have swung wildly in value, Kuharski adds. He says home prices here might level off, but shouldnt drop as much as in areas hit hard by the subprime lending crisis.


I think the Spokane area has never been overexuberant, he says. Now were sort of in a good spot. People are still discovering the area and looking beyond 2008.


He says the Spokane area continues to be attractive for its relatively affordable housing values, employment opportunities, schools, and living and recreational environments.


Contact Mike McLean at (509) 344-1266 or via e-mail at mikem@spokanejournal.com.