What happens after foreclosures rip through a neighborhood? A look at two Harris County cases

RESEARCH :  Sep. 26, 2022 HOUSING

Neighborhood torn in two

The 2022 State of Housing in Harris County and Houston analyzed foreclosures countywide from 2005 to 2020. But what happens to a neighborhood after a foreclosure crisis?

This post focuses on two census tracts: one within Greenspoint in the county’s north where the foreclosure rate was 16 times the county’s rate, and one in Bear Creek in the west with more than 1,400 total foreclosures. Both are disproportionately non-white areas, and both had different recoveries that make a bigger point about racism, housing policy, and quality of life.

The Great Recession and the foreclosure crisis are still poorly understood by the public at large. (I recommend this book for an excellent dissection.)

We know Black and brown communities got hit worse, and that investors moved to quickly acquire foreclosed properties in their neighborhoods. We know that certain Rust Belt metros and the Sun Belt were hit worse (though Texas did not fare too badly). Expert insight into the federal government’s response was that it was too little, too late, and too timid.

The contours of the crisis are clear, and the effects of foreclosure on neighborhoods are extremely well-documented and generally very bad, but it is less well understood how specific Harris County communities have recovered.

Some new data helps answer that. The most recent State of Housing report included a new dataset on foreclosure auctions from 2005 to mid-2021. This 15-year period captures the pre-Recession period, the Recession, and (perhaps most importantly) the economic recovery in the latter years of the 2010s. These data differ from foreclosure data from prior year’s State of Housing reports, which used less-detailed data from a much shorter and more recent time window.

To measure foreclosures, we found each census tract’s foreclosure count and foreclosure quotient. The foreclosure quotient measures how much a tract’s foreclosure rate (which is foreclosure auctions 2005-2020 divided by the count of owner-occupied households) differs from the countywide foreclosure rate. So if a tract has a foreclosure quotient of 3, that means it had a foreclosure rate three times the county’s rate.

(Data and methods diversion: To calculate the foreclosure rate we measured all trustee auction sales [commonly referred to as “foreclosure auctions”] on residential properties from 2005-2020, and divided that by the 2019 ACS owner-occupied household count. We only counted the most recent foreclosure auction record for every single parcel ID, so as to not double-count properties that were foreclosed multiple times in the 15-year period or which went to auction multiple times without selling.)

Between 2005 and 2020, the county had 116,254 homes go to the foreclosure auction block. The worst year was 2010, with at least 15,317 properties going to foreclosure auction (not accounting for properties that may have foreclosed again in future years and thus weren’t recorded for our 2010 data). The maps make clear that while suburban areas had the most foreclosures, the rates of foreclosures were highest in predominately non-white communities in the county’s north, south, and west. (Consult this link to see a recent reference map of Harris County population by race/ethnicity).

While the post-Recessionary period had high foreclosures, it is worth noting the 2018 bump in foreclosures. Two things could account for this: In 2018, Houston’s economy suffered from a very weak oil and gas economy, and it was also the period when households that took a financial hit by Hurricane Harvey would likely have enough delinquent payments to reach foreclosure. A recent book by Rice sociology professor Anna Rhodes and Max Besbris, Soaking the Middle Class: Suburban Inequality and Recovery from Disaster, details how storm recovery exacerbated inequalities in the county’s suburbs, with a specific focus on the Friendswood community. The authors demonstrate how disasters like Harvey often push financially stressed home loan borrowers over the edge into foreclosure.

As of 2010, the worst year of foreclosures countywide, Harris County had 814,810 owner-occupied households, meaning the county had a foreclosure rate of 1.9%. When comparing Harris County to counties in Florida or California which had double-digit yearly foreclosure rates at the peak of the Great Recession, our local impact does not appear too awful.

With this noted, some areas in Harris County were torpedoed by foreclosures, with foreclosure rates in some census tracts 3 or 4 times worse than the county’s rate. (Census tracts are a geographic boundary that roughly represent a neighborhood. For more information about census tract definition go here, or see my favorite Twitter account.)

These high-foreclosure quotient communities all have a majority of Black and Brown residents, signaling the deep racism embedded within lending practices (see this example of Rice professor David Zhang’s research on the subject) and the U.S. housing market more broadly.

Tract 5422: Bear Creek’s new developments go awry, but the community recovers

Residents here have Katy addresses, though the entire tract is within unincorporated western Harris County. The boundary between Katy and Cy-Fair ISD runs through the area, and the Grand Parkway bisects it. The tract’s north boundary is roughly FM 529 (Freeman Road) and the southern is roughly Clay Ave. A few municipal utility districts cover the tract - 12, 105, 458, among others - providing funding for much of the public infrastructure in lieu of a city government.

In fewer words: this area is new and suburban. Twenty-five years ago, this was mostly farmland; today it has drive-through restaurants and single-family homes, with plenty of open, developable land.

Therefore in the 2000s, the foreclosed home occupiers were probably the first residents in these newly-built homes. (The same holds true in the other census tract, as we shall see.)

Between 2005 and 2020, 1,416 homes in this tract went up for foreclosure auction, more than any other tract in the county. Its foreclosure quotient is 2.10, meaning that its foreclosure rate was more than double the county’s. But this isn’t even in the top 40 of all tracts’ quotients countywide, which is because of the large number of owner-occupied homes by 2019 inflating the denominator.

We lack extensive records on foreclosure loan terms. But our data do not point towards a single lender holding these foreclosed mortgages, as no single bank held more than 15% of the foreclosed loans. (Though the foreclosing bank may not be the bank that initially wrote the loan, as mortgages can move across different banks.) Like citywide trends, the bulk of this area’s foreclosures happened during the peak of the recession.

How did the foreclosure crisis affect the area’s fate?

The neighborhood seems to be even more prosperous than before. As of 2010, this area was extremely middle class: Its median household income ($55,619) was about equal to the county’s ($51,444) at the time. By 2020, the tract became wealthier and larger, increasing its population by over 10,000 people (68%) in only 10 years. The construction sector recovered, as the higher occupied household count illustrates there was new home construction for wealthier (and much less white) residents. The tract’s poverty rate is now in the single digits.

While parts of the greater Bear Creek watershed were hit hard by Harvey, this tract was relatively spared, and a minuscule amount of post-September 2017 foreclosed homes were within Harvey’s satellite-documented inundation area in the census tract.

Previous Urban Edge posts and the State of Housing reports have highlighted how the share of single-family rentals have grown enormously in Houston’s suburbs. The same appears to be happening here. Tellingly, the tract’s share of owner-occupied households decreased by 14%.

A sizeable share of the foreclosed properties likely became rentals. Of the 1,416 foreclosed properties, at least 150 are currently owned by entities with “LLC” in the name (per 2021 appraiser records). Keep in mind, even small landlords may incorporate LLCs in order to minimize liability, so having an LLC does not conclusively point toward the presence of a large “corporate” landlord.

This is the paradox: While the families moving into Tract 5422 in the Katy area appear to be wealthier, they are less likely to be homeowners.

Tract 5502: A Greenspoint subdivision goes extremely bust

This Greenspoint census tract is a different character. Rather than being in Katy’s stronger real-estate market, it lies within a slower-to-grow, less wealthy area in the county’s north, mostly within Houston city limits. Lying west of I-45 and between Greens Bayou and Rankin Road, the tract is likewise split between two ISDs: Spring and Aldine.

In all of Harris County, this is the tract with the highest overall foreclosure rate, which exceeded the county’s rate by 16 times. But the tract has only 89 foreclosure auction records, far fewer than the Bear Creek area.

All of those 89 foreclosure records happened in one subdivision called Northborough Village, which contains 164 homes and was built out around 2004. Thus in only one subdivision, over 50% of the homes went up for foreclosure auction within 15 years of their construction. People moved in, and within a few years, lost their homes and moved out.

Northborough Village’s unusual foreclosure rate inflated the tract’s overall foreclosure rate. The tract contains few other owner-occupied properties and otherwise has mostly industrial/commercial land uses. Ergo, Tract 5502 was unfortunately the county’s leader in foreclosure rates because of that one subdivision’s crisis. The subdivision’s extreme foreclosure concentration was unfortunately not uncommon; for example, certain subdivisions in the northeast of the Katy/Bear Creek tract had similarly high rates, but the overall tract had enough other owner-occupied homes to increase the denominator and keep the overall foreclosure rate lower.

Like the Katy community, we cannot identify a single bank or lender that had a majority or even a sizeable plurality of the foreclosed mortgages in Northborough Village. But unlike the Katy community, GMac ResCap appears attached to a notable share of the foreclosures. GMac ResCap went bankrupt in 2012, as a result of being too active in the subprime balloon-rate mortgage market when the Great Recession hit.

What became of the community after the crisis?

Unlike the Katy census tract, this community has not seen increased prosperity. The Greenspoint tract’s poverty rate, while lower than 2010’s rate, still exceeds 40%, and the community’s population hasn’t grown nearly as much as Bear Creek’s. The construction industry has not built out as many subdivisions; the count of occupied households has remained effectively the same.

The community’s share of Black residents has decreased by a large share (25%). We cannot reliably extract race/ethnicity data from our foreclosure records, and the Black population decrease may be attributable to developments outside of Northborough Village, but this point is worth noting. From 2010 to 2020, the era of Recession recovery, the tract went from being majority Black to only plurality Black.

The dream of homeownership appears even more forestalled in this Greenspoint neighborhood. Very few residents who were foreclosed are still in their homes today, and at least 15 of the 89 are LLC-owned, suggesting that these homes are now rental properties.

All told, the foreclosure crisis damaged the promise of accumulating wealth through homeownership for this community, at least for now.

Foreclosure, suburban housing markets, and the shift toward housing quality

Both of these high foreclosure census tracts are suburban communities outside of Beltway 8. A lion’s share of foreclosures happened in unincorporated Harris County. These foreclosure-prone communities are not on the map of local gentrification debates. And our own forecasts of potential future gentrification ignore them entirely.

Yet, like the historical urban core at the center of gentrification talk, suburban communities like these two tracts have a large and growing share of renters, something linked to the wave of foreclosures that happened from 2008 onwards. The rental stock includes both large and relatively affordable apartment complexes, and (increasingly) single-family homes. Our Re-taking Stock report on building types and gentrification found a similar pattern: The suburbs are where Harris County residents can find affordable rental housing in large apartment complexes and, increasingly, houses.

Conditions in these suburban rental properties often do not reach central-city eyes. In our case study of Spring Southwest, many apartment buildings were in the flood-prone Greens Bayou watershed. Note that the under-maintained apartment complex Mayor Sylvester Turner recently visited with HPD officers in order to bring attention to property negligence was not in a gentrifying community like Third Ward or the East End, but in the city’s far east, just adjacent to Jacinto City and barely inside city lines.

Landlord-tenant policies perhaps could become a policy priority for the commissioners court, given the growing share of renters in the county’s fringes, often outside city jurisdiction.

The foreclosure crisis highlighted how the suburban homeownership dream may not be stable, while Mayor Turner’s public appearance near Jacinto City shows how suburban rental housing conditions are becoming a priority for local policymakers.

Jointly, these two trends may suggest the need for a policy shift towards emphasizing housing quality in addition to housing affordability.

As much as housing affordability is the focus of many of our reports, city and county governments do not have the power to control sales prices or rents (at least in Texas, where the state government made it illegal for cities to have rent control laws or mandatory inclusionary zoning). Local down-payment assistance programs, while important, do not have the cash to bring homeownership to the masses. At least since the 1970s, local housing authorities have chosen not to build new large-scale social housing.

But local governments can more easily regulate housing quality and housing security. Prior Kinder research showed housing security and resilience is a particular problem in the county’s east. To my knowledge, the state has passed no rental inspection or just-cause eviction preemption laws. County and city code enforcement and building inspectors can regulate home quality through levying fines on violating landlords, holding rent in escrow until repairs are made, or condemning for-sale homes deemed unfit for habitation. Laws can limit extortionary landlord fines. These are among the policy options, which have been controversial in other jurisdictions, that city and county elected officials may choose to pursue.

During the foreclosure crisis, many families, who were sold balloon-rate mortgages by predatory lenders, had their path to wealth through homeownership ultimately lead to housing insecurity, particularly in predominantly Black communities in the suburbs.

If someone already suffered the indignity of a foreclosure, they shouldn’t suffer the second indignity of illegal landlord intimidation and dangerous, not-up-to-code rental housing. If single-family homeownership and affordability is becoming less the norm in many of the county’s suburban communities, for now, then at least home stability and security could be.

State of Housing report
The 2022 State of Housing in Harris County and Houston
Jun. 22, 2022

The third annual State of Housing report looks at the pandemic's impact on the local housing market. The report also sets new housing baselines on mortgage loan data, homelessness and other housing indicators.



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