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Foreclosures: Are They Increasing or Decreasing?

There seems to be much confusion about the number of distressed properties which are currently entering the housing market. This inventory has a tremendous impact on pricing in any particular region. For this reason, we want to bring a little clarity to the situation. Mortgage delinquencies are decreasing and foreclosures are increasing. Still confused? Let us explain.

Delinquencies are decreasing

The great news at this time is that the number of people 90+ days behind on their mortgage payment is falling. As the employment picture slowly brightens and families adjust to their current financial situation, more people are paying their mortgage on time. This has created headlines touting that the foreclosure situation is easing. Those headlines are correct. However…

Foreclosures are again flowing to the market

We must still clear the large inventories of foreclosed properties that exist. We had a small reprieve over the last few months as many distressed properties were caught in a logjam created as banks corrected faulty paperwork. That bottleneck is beginning to clear. This month’s LPS Mortgage Monitor shows exactly this situation in this graph:

 

As further evidence, Campbell/Inside Mortgage Finance just released their HousingPulse Distressed Property Index (DPI). The Index indicated that:

… nearly half of the housing market is now distressed properties. This trend is likely to continue as a backlog of foreclosures and mortgage defaults make their way through the housing pipeline.

What does this mean?

We will keep hearing what seems to be conflicting reports on the foreclosure situation. Remember that delinquencies and foreclosures are two different measures and can go in different directions. Here is an additional slide from the Mortgage Monitor to help you distinguish the differencies.

Bottom Line

More people are paying their mortgage. Once we clear through the existing distressed property inventory, the market will finally gain momentum.


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28 replies
  1. Jim Gilbertson
    Jim Gilbertson says:

    So, I am still confused. Is it a good time to buy or not? Are values going up or down based on the above conclusions? Realtors say yes, Susie says no.

    Personally, I think we have a long way to go. Like 5-8 more years.

    Jim G

    Reply
  2. Liz Listings
    Liz Listings says:

    I’d say its a good time to buy for the long term Jim. It’s definitely a buyers market and there are some great deals out there. Most markets are at or near bottoms.

    Where I’d be hesitant to buy is if you may be in a position to have to resell in next 5 years or so. The days of buying homes for a few years are over – at least for now. I’d only buy for the long term – and I’d stalk the market. No reason to pay up for anything right now.

    Reply
  3. Real Estate Agent
    Real Estate Agent says:

    I was doing some research on this just today, actually. Basically I took away that declines in delinquencies now means a drop in actual foreclosure sales much, much later…. we’re still paying for the fallout of the foreclosure crisis because bad banks and red tape have clogged the process until now.

    Reply
  4. Ken Montville
    Ken Montville says:

    I’m not sure it’ll take another 5-8 years to clear through the inventory as Jim G. suggests. However, lender standards need to relax a bit so that first time home buyers can enter the market and buy up some of these properties.

    The housing inventory (number of homes), distressed or not, will continue to be a drag on the economy and the housing market as long as lending is so tight.

    So, if you can get a mortgage, it is a good time to buy. Prices are down, rates are low, etc. If you can’t get a mortgage, the question is moot. You can’t buy whether it’s a good time or not.

    Banks also need to streamline their short sale and foreclosure process so that it is :
    a) legal with attention to due process
    b) accurate
    c) efficient

    The biggest problem, in my view, for a lot of the excess inventory is that banks don’t allow short sales to sell. It doesn’t make sense. The banks would actually net more money in a short sale vs a foreclosure but they just don’t seem to get it.

    Thus, short sales become foreclosures and the foreclosure numbers go up.

    Reply

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