Monday, March 21, 2011

Foreclosure Statistics are Misleading

I recently read a report that state officials were touting that the foreclosure rate is dropping and they were really beaming and telling all who would listen that the markets have turned around in Florida. Their statistics are flawed.

There were marginally fewer foreclosures filed in 2010 as opposed to 2009 in Florida. HOWEVER, the pool of homes that could possibly enter foreclosure was smaller so the foreclosure rate actually increased. Here is an example...if in Year 1 a state has 1,000,000 homes and 200,000 go into foreclosure, that is a foreclosure rate of 20%. Simple enough. I am going to keep this simple although it is really more complicated. In Year 2, 190,000 homes go into foreclosure and it appears that the rate of foreclosure is slowing down. It isn't!!

The reason is that presumably there is only now 800,000 homes in the foreclosure pool since the 200,000 that entered the prior year would more than likely not be foreclosed upon again so quickly (it could happen but is probably statistically insignificant). In Year 2 of this example, the foreclosure rate was actually 23.75% (190,000 out of 800,000).

Apparently good news sometimes is actually bad news..depends upon how you spin it...this applies to government run healthcare too by the way!! LOL

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