In my very first post for BiggerPockets.com two and a half years ago (Twilight of the Foreclosure Time), I discussed how the volumes of foreclosures that attracted so many investors to residential real estate would end…and when. It’s ending more or less on schedule in most markets, but in a way that may surprise many.
The Foreclosure History
The flood of foreclosure that first hit the sand states in 2007 and 2008, mostly resulting from borrowers defaulting subprime and “alternative” loans that should never been made, clobbered the housing markets like Sandy hit the Jersey Shore. When the national Great Recession followed, it was off to the races, and a regional disease became a national plague.
In the time that has passed since Twilight of the Foreclosure Time was published several things about the end of the Foreclosure Time have become clearer. Reports released this past week by RealtyTrac and CoreLogic paint a rather clear picture of what the final months and weeks of the Foreclosure Time will be like,
The Foreclosure Time will not come to an end uniformly across the nation. Significant volumes of foreclosures will linger in a handful of judicial states where state laws or legal roadblocks have processing times significantly. The average time to foreclose was 1,033 days in both New York and New Jersey — the longest among the states. New York’s timeline was down 2 percent from the previous quarter while New Jersey’s timeline increased 3 percent. Other states with the longest average foreclosure timelines are Florida (907 days), Hawaii (824 days) and Illinois (817 days). Investors large and small will find significant inventories to do business, though the climate in these markets may be hotly competitive.
“Halfway through 2013 it is becoming increasingly evident that while foreclosures are no longer a problem nationally they continue to be a thorn in the side of several state and local markets, particularly where a backlog of delayed distress has built up thanks to a lengthy foreclosure process,” said Daren Blomquist, vice president at RealtyTrac. “The increases in judicial foreclosure auctions demonstrate that these delayed foreclosure cases are now being moved more quickly through to foreclosure completion. Given the rising home prices in most of these markets, it is an opportune time for lenders to dispose of these distressed properties, either at the foreclosure auction to a third-party buyer, or by repossessing the property at the auction and subsequently selling it as a bank-owned home.”
In most states bank repossessions declined during first quarter, which means that they have worked through their backlog of defaulted properties and their inventories of new starts are a fraction of what they once were. Bank repossessions in the first half of 2013 were down 19 percent from the previous six months and 23 percent from the first half of 2012. RealtyTrac reported only 127,790 properties had foreclosure filings in June, down 14 percent from the previous month and down 35 percent from a year ago to the lowest monthly level since December 2006 — a six and a half year low.
Though data on short sales are harder to come by, one can assume they also are down significantly and, like foreclosures, are headed for a minor role in the real estate economy. Like foreclosures, short sales begin with delinquencies. Fewer new problem loans, declining levels of negative equity and shrinking inventories of bad loans from the boom era have helped to reduce mortgage delinquencies by the largest year-to-date decline since 2002. Last week the May Mortgage Monitor report from Lender Processing Services found that the national delinquency rate continued to fall in May. Delinquencies are down more than 15 percent since the end of December 2012, coming in at 6.08 percent for the month.
How Will It End?
Finally, the Foreclosure Time will not end suddenly, as it began. It will indeed end quietly in most places aside from those laggard states noted above. Nor is the end far off.
“We continue to see a sharp drop in foreclosures around the country and with it a decrease in the size of the shadow inventory. Affordability, despite the rise in home prices over the past year, and consumer confidence are big contributors to these positive trends,” said Anand Nallathambi, president and CEO of CoreLogic. “We are particularly encouraged by the broad-based nature of the housing market recovery so far in 2013.”
CoreLogic estimates the current residential shadow inventory as of April 2013 was less than 2 million units, representing a supply of 5.3 months. As of May 2013, approximately 1.0 million homes in the U.S. were in some stage of foreclosure, known as the foreclosure inventory. That’s a total of fewer than 3 million homes, certainly less than a year’s supply.
Did you hear a whimper?
Photo: Profound WhateverWill the Foreclosure Time End with a Whimper or a Bang? by Steve Cook