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There is an emerging pattern in which mortgage defaults by state inversely correlate to the rate of home appreciation. 

We first noticed this trend in California, where foreclosure rates are ultra-low.  Now, I've found two "Top 10" lists that add support for the pattern. 

Table 1 lists Q4 2005 state foreclosure rates:

Rank	State	Foreclosure Percentage
1	Indiana	0.98
2	Ohio	0.89
3	Michigan	0.74
4	S. Carolina	0.67
5	Oklahoma	0.65
6	Georgia	0.62
6	Kentucky	0.62
8	Tennessee	0.61
9	Kansas	0.55
10	N. Carolina	0.53

Table 2 shows the annual home appreciation rate on a state-by-state basis, as reported by the Office of Federal Housing Enterprise Oversight.  I've bolded the states that show up in both lists.

Rank	State	One Year Change in House Prices
51	Michigan	3.76%
50	Ohio	4.03%
49	Nebraska	4.25%
48	Indiana	4.69%
47	Kansas	4.70%
46	Kentucky	5.32%
45	Texas	5.49%
44	Colorado	5.99%
43	Iowa	6.30%
42	Georgia	6.44%
41	Oklahoma	6.53%

The average home appreciation was 12.95% for the same period. 

There is a lot of similarity in these two tables which gives credence to the idea that home appreciation and foreclosure rate are related. 

Some additional observations on the charts' similarities:

1. Indiana, Ohio, and Michigan are Win, Place, and Show in the foreclosure list, and occupy 3 of the bottom 4 slots in rate of home appreciation.
2. Seven states made both lists.
3. South Carolina and North Carolina are not necessarily an exception.  Foreclosures may be high because these two states got pounded by hurricanes in 2005.
4. Tennessee was #16 worst in home appreciation and didn't make our Top 11 list. appreciation.

Poor appreciation is not the only reason why mortgage defaults happen.  Faltering local economies may be another reason, for example. 

I am also not saying that there is a cause-effect relationship.  It could even be that foreclosures cause low appreciation instead of the other way around.  Or, state lending laws could play a part.

It's too soon to tell, really.  But, over the next few months, perhaps will see this pattern turn into a trend.  When that happens, maybe the hypothesis get proved.  Or maybe proved false.

Source
4Q 2005 House Price Index
Office of Federal Housing Enterprise Oversight

http://www.ofheo.gov/media/pdf/4q05hpi.pdf

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Dan Green is an active loan officer. Email or call 513-443-2020. Dan is on Twitter at @mortgagereports.