This is the second installment of a three-part series (click here to read the first) on how the breakdown in lending standards has forestalled the home building industry's economic recovery. The stories will focus on how we got to where we are today, how foreclosures and plummeting property values are affecting a new community in Indiana, and the analysts' best guesses on when the downturn will end.
It's all a little surreal. as you take a right into the Woodland Trails development on Arbor Trails Drive in the Franklin Township section of Indianapolis, all seems well. The community, built just three or four years ago, looks like any other suburban subdivision. The sidewalks are spotless, and the lawns are well kept. The modest two-story, three-bedroom homes sport pick-up trucks in the driveways and Colts decals or flags on the windows. This is working-class nirvana, a place where factory workers and truck drivers as well as public service workers such as teachers and police officers can carve out their piece of the American dream. A place where you can nurse a beer on your back porch and see the stars at night.
Yet as you drive through the subdivision, it soon becomes clear that something is wrong. Make a left on to Birds Eye Drive and across the street from a house with a nifty Colts emblem on the mailbox is an obviously empty house with a for-sale sign. Go down the block a bit more, and the neighborhood stops looking like the place the average middle-class couple would want to raise their family. Across the street from another vacant house is a home with a pick-up truck with a flat tire, an ominous-looking purple Lincoln, and a bluegreen Chevy Impala from the mid-1960s that needs a lot of work.
Make a left on Hemlock Way and the first house on the left is for sale. Everything's fine for a while, and then you make a right on Knobstone Lane and the house on the corner of Knobstone and Salamonie Drive is empty. The home is clearly abandoned, with waist-high weeds growing in the front yard. Across the street, further up Knobstone Lane there are two houses in a row with stickers indicating the properties are in foreclosure. The aluminum siding on one home's right side is flapping in the breeze. The other house has a long crack on the left side of the front garage door. The talk around town of families making so-called “midnight runs” in the dead of night, fleeing the harsh judgment of repossession, seems to be embodied here.
Pass the retention pond on Knobstone Lane and on the left is yet another foreclosed home, this one with a missing mailbox and the for-sale sign knocked over. Across the street from the playground there's some trash lying in the street, perhaps a piece of fencing. Two doors down from the playground there's another vacant house.
Go another quarter-mile and Knobstone Lane becomes Knobstone Way. Marking the transition is another foreclosed house, and three doors down is the home of Mike Pope, 24, who's emerged as the classic example of a young person on the economic margins who should never have qualified for a new-home loan in the first place. Pope opted for foreclosure this summer when the interest rate increased on his FHA-insured 2-1 buy-down loan and he was hit with local property tax increases.
Pope's 2-1 buydown loan started at a low interest rate for the first year and went up a percentage point each year. The loan then stays fixed after the third year. As of early June, Pope had fallen far behind on his payments. His take-home pay of roughly $2,000 a month from his night job as a machinist could take care of the mortgage payment, but there was little left over for utilities, food, clothing, and gas, which was still hovering around $3 a gallon for much of the summer. Currently, gas and food alone eat up whatever take-home pay he has left after paying the mortgage.
Pope's situation is like that of many other families in Franklin Township, a section of Indianapolis south of the city's downtown that records the lion's share of new building permits in Marion County. The county encompasses the city of Indianapolis and all surrounding townships and operates as a combined city-county government. RealtyTrac, a national database of foreclosure activity, has named Indiana a top-10 foreclosure state for several years running, and about half those foreclosures are in Marion County. According to the RealtyTrac data, while 42 percent of the 6,572 cases of foreclosure activity in Marion County for the first four months of 2007 took place in inner-city neighborhoods with older housing stock, Franklin Township, where much of the area's new construction occurs, accounted for 6.1 percent of the county's total foreclosure activity. The township's total percentage of foreclosures is bound to grow this year as more new homeowners like Pope, living on tight margins, fall prey to rising interest rates and expensive local property taxes.
To be sure, foreclosure was not in Pope's original plans.
“My wife Cara and I were living in an apartment more than three years ago, and we wanted to get out of the apartment and into a house,” says Pope, a stocky young man with short red hair who dresses like the modest night-crew worker he is, in a dark blue T-shirt and blue jeans. “At least when we started we thought we could afford the payments,” Pope explains.
Learn more about markets featured in this article: Indianapolis, IN.