Last Call

Via Atrios, we learn Chicago's suburbs are getting inundated with foreclosures.

Across the six-county Chicago metropolitan area, foreclosure filings rose 6% in the first quarter to 17,819, the highest one-quarter total since the housing crisis began in mid-2006.

The shifting locus of new foreclosures shows how the recession and job losses are supplanting subprime lending as the main driver of mortgage defaults, says Geoff Smith, vice-president in charge of research at Woodstock. While the first wave of foreclosures hit hardest in poorer city neighborhoods targeted by high-interest-rate lenders with loose credit standards, the latest round is striking middle-class areas where most borrowers qualified for standard-rate mortgages.

Foreclosures in the suburbs aren't likely to abate until unemployment stops rising. That means more downward pressure on home values across the metropolitan area as foreclosed homes hit the market at fire-sale prices. Suburban communities also will face the consequences of vacant houses and dislocated families, which range from overgrown yards to increased demand for social services.

"We were able to ignore (the foreclosures) for a while, but we can't ignore it anymore," says Donna McQuade, president of the Realtor Assn. of the Fox Valley and managing broker for the Geneva office of Coldwell Banker Primus Realty.

In the far western suburbs along the Fox River from North Aurora to Elgin, nearly one in five homes listed for sale is a foreclosure or a short sale — one in which a seller owes more in mortgage debt than the home is worth, according to the association. Comparable data for last year isn't available, but Ms. McQuade says the percentage of foreclosures and short sales couldn't have been higher than 5% a year ago.

In affluent St. Charles, with a median household income of $75,181, about 9% of the 697 homes for sale are foreclosures or short sales.

This is the beginning of the second wave of foreclosures, those brought on by rising unemployment and adjustable rate mortgages resetting and exploding in people's faces. We're going to see a lot more of this in 2009 and well into 2010. All this talk about the housing market bottoming out this summer is premature. We're going to see a lot more foreclosures in a short period of time, and that's going to lower home values even more, causing banks to get hurt, causing more people to go underwater, causing more problems across the board.

This is the eye of the storm, folks. We have another year or so of serious pain to go before the real bottom hits...maybe longer.