Editor's note: This is the second article in a two-part series examining the effect of the recent subprime loans crisis on the Upper Valley.
While new residences sprang up and housing prices soared across the nation in recent years, the Upper Valley saw minimal development and moderate rises in housing prices. Today, as communities across the country struggle with the housing crisis, the Upper Valley is reaping the benefits of its stable economy and modest residential growth.
While local reliance on loans from New Hampshire banks rather than mortgage brokers has helped the Upper Valley endure the nationwide subprime mortgage crisis, the area's stable economy, steady housing market and lack of recent development have also minimized the effects of the crash.
Subprime loans, which are given to buyers whose credit would not generally entitle them to a loan, have recently led to home foreclosures across the country. In New Hampshire, subprime adjustable rate mortgages, in which an initially low interest rate jumps above the market rate after two to three years, have accounted for the highest percentage of the state's home foreclosures, according to a December report by the New Hampshire Housing Finance authority.
Large institutions such as Dartmouth College and Dartmouth-Hitchcock Medical Center, which remain largely unaffected by turns in the economy, have helped the local area withstand the current crisis, said Kenneth Wells, vice president of retail lending & CRA officer of Mascoma Savings Bank.
The Upper Valley is also composed primarily of higher income borrowers, who work to avoid defaulting on their mortgage payments, even as housing prices fall, in an effort to maintain their credit rating, economics professor William Fischel said. A low credit rating makes it difficult for these individuals to obtain future loans.
People with lower incomes are more likely to default on their mortgage in the face of falling housing prices and return to the rental market, Fischel said.
Although New Hampshire's economy is generally healthy, some areas of the state experienced economic slowdowns that exacerbated the effects of the subprime crisis. The closure of several paper mills in Coos County, N.H., left many unemployed and unable to pay their mortgages, Lebanon Chief Assessor Dave McMullen said. This pattern has been mirrored in states like Ohio and Michigan, which have seen rising unemployment following job loss in their manufacturing sectors. Both states have also faced high home foreclosure rates, Jane Law, director of communications for the New Hampshire Housing Association said.
Relatively stable housing prices in the Upper Valley have further deterred a more serious fallout from the crisis. Nationally, the areas most affected by the subprime crash were those in which borrowers of limited means bought houses in a turbulent market, Fischel said. Buyers who purchased houses during an inflation of housings costs saw their mortgage rates soar as the value of their houses declined when the market receded. Thus, their mortgages were more valuable than their homes, and they were unable to keep up with the payments.
While low-income borrowers exist in the Upper Valley, he said, the price of housing in the area has not declined substantially.
"The areas worst hit faced declining house prices so that people walked away or were not able to pay their mortgages," Fischel said.
Ned Redpath, owner of Coldwell Banker-Redpath & Co., Realtors, estimated that housing prices in the Upper Valley have fallen by about eight percent since their peak in 2005.
In Grafton County, McMullen said, housing prices actually increased by 1.42 percent between 2006 and 2007 -- the largest increase of any county in New Hampshire. McMullen said this rate was more sustainable than the high growth which preceded the crisis.
"We are seeing more of a realistic level of growth then we have been experiencing for the last couple years," he said. "It's more of a traditional form of market growth. I see it as very healthy, although only time will tell."
Housing prices increased far more dramatically in the Boston area, leaving residents there more affected by the eventual crash, Fischel said. In Rockingham County, N.H., -- the county closest to Boston -- prices experienced similar growth and, as a consequence, the country was more heavily affected than the rest of the state, McMullen said.
The lack of real estate development in the Upper Valley has also helped the area endure the crisis. In states such as Florida and Nevada. developers sought to capitalize on a perceived demand for housing, leading to a rise in building projects across the two states, Law said. As the market began to slow, however, the excess of houses on the market meant that prices sharply decreased.
The Upper Valley, in contrast, has seen only a few small housing developments in recent years, Wells said. National builders generally stay away from the area due to its low population, while expensive land and complicated zoning laws makes the area unattractive to smaller developers.
"A lot of the good land here is gone, or expensive or hard to develop," Wells said. "The local zoning around here not always the most accommodating."
Banks in the area have also been wary to loan to developers, as the 1990 housing market crash is still in recent memory, Wells said. During this period, a booming New Hampshire economy spurred the construction of condominiums and homes. When prices fell, however, homeowners found themselves unable to pay their mortgages.
"Banks still remember the early [19]90s here when there was excess development and it all came crashing down," Wells said. "We all worked together to prevent excess development this time."
