Foreclosure Hangups Still Haunt Housing Market

Foreclosure Hangups Still Haunt Housing Market

2 min read
Harrison Stowe Read More

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The prior week’s news cycle was flooded with stories about both “vampire” and “zombie” foreclosures, two styles of toxic equity that still weight down the housing market. The horror-monster buzzwords aside, both foreclosure types remain prevalent throughout much of the country.

Vampire Foreclosures

As a story from CBS MoneyWatch outlines, “vampire foreclosures” are bank-reclaimed homes in which the original owners are still living on the grounds. Currently accounting for an alleged 47% of all bank-owned homes, many “vampire foreclosures” have been allowed to linger because banks had greater priorities than enforcing eviction. However, as the housing market continues to stabilize and bank refocus their resale efforts, certain areas may be hindered by incomplete foreclosures.

Citing the metros of Huston, Los Angeles, and Chicago in particular, the MoneyWatch article notes that these properties haven’t yet impacted regional housing prices. Banks have focused on reselling houses without complicated foreclosure status, which as helped buoy real estate values. As homebuyer demand continues to rise, and complete foreclosures become less available, banks will inevitably have to sort through the lingering inventory of vampire foreclosures.

The impact of prolonged residencies will naturally affect regions that have a higher volume of vampire mortgages. Their most pronounced impact will be on home prices, whose appreciation could slow or outright stall depending on the depth of property still occupied by financially troubled residents. Additionally, local banks could lose the confidence of investors and prospective homebuyers if it becomes apparent that they were neglecting their foreclosure responsibilities.

What About Zombie Foreclosures?

Saddled with another Halloween-themed moniker, “zombie foreclosures” are homes in which the owners have vacated the property, but banks are holding back on selling them. A sort of functional inverse to vampire foreclosures, zombie foreclosures are often being artificially pushed away from the housing market to prevent price drops. Their withholding from the sales field has prevented regional prices from dropping, but remain as a potential snag when they are released onto the open market.

Ultimately, both varieties of foreclosure could have the impact of deflating the recovery. As a similar report from MarketWatch notes, they won’t completely interrupt the rebound, but they do risk slowing down market stabilization. Both zombie and vampire foreclosures will take the strongest toll on regional housing prices, and areas with a high concentration of compromised foreclosures can expect to see the most pronounced stall in price gains.

This is not to neglect the human side of the foreclosure market – as banks are driven to address vampire mortgages, financially burdened families will be forced from their homes. Additionally, many families with the ability to contest the mortgage process will likely revamp their efforts. As a result, states with elevated numbers of vampire mortgages may be confronted with uncertain sales volume throughout the next few months.