Peering behind Madison’s anti-recession image

With the towering Capitol rotunda visible from the steps of Bascom Hall, Madison’s ability to weather the recent foreclosure crisis appears to have a simple explanation.

Economists and area residents alike identify the supply of stable jobs provided by the state government and University of Wisconsin as the source of Dane County’s seeming ability to ride out economic recessions.

And while these landmarks serve a crucial role in keeping the county free from a plethora of boarded up houses and “For Sale” signs, less obvious factors also foster economic stability.  

Dane County — the second most populous county in the state according to the 2010 census — was home to more than 1,200 foreclosure filings in 2011, the second highest in the state.

But the number of foreclosures was 3,800 fewer than the state leader, Milwaukee, a county with less than double the population of Dane. Foreclosure rates in Madison were closer to those of counties a fraction its size, like Kenosha.

According to data from the University of Wisconsin’s Center for Community and Economic Development (CCED), the foreclosure rate per 100 houses in Dane County was 0.72 in 2009, well below the statewide rate of 1.12.

In a city where master’s degrees and Ph.D.s are no particular mark of distinction, opportunities provided by UW-Madison and the government distinguish Madison from industry-centered economies like Milwaukee’s.

High-tech businesses like healthcare software giant Epic Systems have further bolstered the local economy. Matt Kures, an analyst for CCED, says the lack of industrial dependence has helped limit foreclosures in Madison.  

“The sectors that have been hit hardest in the most recent recession have been manufacturing and construction,” Kures explains. “I know we don’t have the share of employment manufacturing as some of the other counties have in the state.”

This arsenal of private and public employers kept Madison’s unemployment rate around five percent in March according to Kures, lower than the May average of 6.8 percent in Wisconsin and 8.2 percent nationally.

Dave Long, a UW researcher who interprets census data, points out this relative economic stability has fueled population growth in Dane County through the recession, while harder hit communities have shrunk.

Between 2005 and 2009, Dane County’s population grew by more than 15,000, while Milwaukee's declined by nearly 10,000 over the same period, according to Wisconsin Department of Administration data.

Long says such population decline is a product of wealthier Milwaukee residents darting for the suburbs. But in Madison, reputable schools and low crime rates convince residents to stay within city limits, forming the foundation of a relatively stable housing market.

“Madison … has good public schools, and neighborhoods that people consider very livable in the sense that they’re safe neighborhoods,” Long says. “There’s not the same phenomenon of ‘white flight’ from Madison that you see in Milwaukee.”

Steady population growth makes for a consistent supply of incoming residents ready to purchase homes from local families who are struggling to make their mortgage payments.

Though housing prices have declined significantly in the greater Madison area, the relative stability of real estate values kept foreclosures from reaching epidemic levels. Homes never fetched the mind-boggling prices during the boom period of the early 2000s that deepened the crisis in places like California and Florida, according to Madison Community Development Authority director, Natalie Erdman.  

“The contributing factors for foreclosure are local markets that have had serious diminution in housing values,” Erdman, who prepared a report mapping out Madison’s foreclosures to analyze trends for the mayor’s office, says. “They had high housing values … and homes are worth significantly less so people are under water on their mortgage.”

Avoiding predatory lenders  

The lack of questionable loans doled out to unqualified homebuyers, which precipitated the current crisis, further contributed to Madison’s ability to avoid widespread foreclosure. In foreclosure hotspots across the nation, housing markets collapsed partially as a result of homeowners receiving mortgages they would not qualify for in a better-regulated market.

But lenders looking to turn a quick profit were less prevalent in Dane County.

Questionable lending practices did occur, as evidenced by the more than 20 complaints filed by the Wisconsin Department of Financial Institutions against different lenders in both 2010 and 2011. But the one-man, independent brokers who often prescribe high-risk subprime mortgages were more common in areas — both in other parts of Wisconsin and nationally — with higher foreclosure rates.

“We certainly had some subprime action here, there’s parts of Milwaukee for instance where you saw very high subprime activity, liar loans, things like that,” Kures notes. “But overall in the state we certainly didn’t engage in that as a whole as much as some other places.”

These lenders often steered clear of Dane County in part because of the prevalence of reliable and established lenders in Madison, says Dan O’Callaghan, who helps lead the county’s foreclosure prevention task force.

In the years leading up to the housing crisis, local banks like the UW Credit Union, Summit Credit Union and Home Savings Bank, remained popular choices for Madison loan-seekers. These older lenders are not as reliant on newer, risky mortgages as independent brokers, and were in a better position to survive the financial meltdown. 

As O’Callaghan points out, many Madison residents had high enough credit scores and sufficient financial stability to secure traditional loans and never needed to seek out more hazardous home financing.

“It has a lot to do with the availability of credit in a given marketplace,” O’Callaghan says. “Madison historically has had good access to financial institutions willing to make loans, especially home loans.”

Madison is not without its families who have been forced to surrender their homes to banks. But the highly educated workforce that powers a resilient economy has allowed the city to emerge from the most devastating housing crisis in decades with a black eye instead of more permanent scarring.

For more information on how Dane County stacks up against other counties in terms of foreclosures, check out the following map: