Bankruptcies are slowing, foreclosures are falling and mortgage delinquencies appear to be on the decline in Utah, all of which suggests the state is feeling renewed economic strength.
For the second consecutive month, bankruptcy filings in August sank compared to the same month of 2002, according to the U.S. Bankruptcy Court for the District of Utah. The court reported 1,781 bankruptcy filings last month, an 11 percent drop from 2,008 filings during the same month last year. July's filings were 7 percent below the same month a year ago.
However, Utah's bankruptcy filings through the first eight months of 2003 have increased 2 percent compared to the same period of 2002.
Foreclosures have dropped in Utah to their lowest point since the fourth quarter of 2001, according to the Mortgage Bankers Association of America's national delinquency survey.
For the three months ended June 30, the most recent data available, the percent of loans in foreclosure in Utah fell to 1.81 percent, down from 1.91 percent during the same quarter a year ago. And the percent of loans entering the process of foreclosure, the trend indicator, also fell year-over-year.
The MBA survey, released Wednesday, also reported that the state's number of delinquencies — mortgage loans that are 30 days or more past due — fell to 4.86 percent in the second quarter, down from 5.09 percent during the same period in 2002 but up slightly from 4.55 percent during the first quarter of this year.
"I think both those (reports) are just recognitions that the worst is behind us," said Jeff Thredgold, president of Thredgold Economic Associates and an economic consultant to Zions Bank. "We are still not growing yet in terms of job growth, but most of the pain is behind us. In a sense, it's two more signs that we're about to turn back to modest growth."
Utah's economy, Thredgold said, bottomed out in August 2002, when the state was down nearly 20,000 jobs. For the 12 months ended August 2003, Utah is down about 3,500 jobs.
Even amid the recent declines, Utah continues to lead all states and the District of Columbia in the number of households per bankruptcy filing, with one filing for every 37 households, according to the American Bankruptcy Institute.
In addition, the state's foreclosure rate of 1.81 percent is the seventh-highest in the nation, exceeding a seasonally adjusted national foreclosure rate of 1.12 percent.
Nationally, the share of homeowners who were delinquent with their mortgage payments rose slightly in the three months ended June 30 from the previous quarter, while the percentage of loans in foreclosure decreased.
Doug Duncan, senior vice president and chief economist for the MBA, said in a conference call on Wednesday that job growth remains the single most important determinant in changes in the levels of delinquencies and foreclosures.
"There is a lagged effect," Duncan said. "As the economy weakens, jobs are lost. Sometime thereafter we start to see a rise in delinquencies. We then, after some passage of time, see a rise in foreclosures. Then, as the economy strengthens and employment strengthens, we see delinquencies start to fall on a lag basis, and then foreclosures fall."
Delinquencies peaked at a lower level following the 2001 recession, at 4.83 percent, than after the 1990-91 recession, at 5.21 percent.
Duncan blamed the uptick in delinquencies from first quarter to second quarter on a lack of new job growth. He said he expected the long-term trend to decline.
Offsetting the negative effects of sluggish job growth were mortgage rates, which ranged between 5.2 percent and 5.9 percent for 30-year-fixed mortgages during the second quarter.
"That meant that massive numbers of households were able to refinance and improve cash flows, thus relieving household budget pressures," Duncan said.
Duncan said he expects improved job growth around November. But he offered a bit of caution looking forward.
"We now have over half of all mortgages having been originated in the last couple of years," he said. "It is the conventional wisdom in the industry that the probability of delinquency for an individual loan peaks in years three to five of its life."