The dark cloud of foreclosures has hung over the real estate market for the past six years dragging down prices. Third quarter data by Realty Trac indicates foreclosed properties being sold into the troubled housing market has fallen to the lowest level since the second quarter of 2007.
Delinquent mortgages fell to the lowest level since December 2008 and the dreaded shadow inventory has also fallen to 1.9 million homes, the lowest number since August 2008. These statistics are national in scope so it does not mean all markets are moving in this direction, exceptions in severely over built markets will take longer to recover. Realty Trac believes the housing crisis is in its last days and foreclosure activity numbers will be normalized by early 2015.
What this study indicates is when foreclosures begin to fade it will support home prices since they won’t be dragging values down. Once the market is cleared of the inordinate amount of foreclosures on the market coupled with a drop in inventory this will leave willing sellers better able to achieve higher market values more quickly. We are seeing this happening right now in Santa Barbara.
Nationally speaking we are more than a year away from foreclosures being at their historical average. Realty Trac charts reveal foreclosures fell 39% year over year in the third quarter and fell 13% since the second quarter. All signs pointing to fewer forecloses and fewer distressed properties on the market spells well for buyers and seller’s alike. Here are the national statistics real estate investors are paying close attention to:
Annual Foreclosures down 29% to 376,931
− Foreclosures down 7% from 2nd quarter
Annual Repossessions down 24%
– But up 7% from 2nd quarter
September foreclosures, default notices, scheduled auctions and bank REO’s down 27% to 131,232 properties.
– But all the above are up 2% from August reading
Annual Foreclosure starts down 33% in August to 57,990
– Lowest level since December 2005
– But up 2% in September
REO’s fell 28% in September Year over Year to 38,334
These are all signs the foreclosure crisis is normalizing but a few areas of difficulty remain such as Baltimore where activity rose 381% and Las Vegas 109% in September and states such as New York, New Jersey and Illinois have large inventories of foreclosed properties yet to reach the market. What all these areas have in common is extremely high unemployment.
Since foreclosure’s peaked in 2009 and started to go down the housing recovery mirrored this in the opposite direction. August home values in the US rose 6.6% in one year’s time. That is a robust number when a “normal” increase might see a 3% to 5% appreciation in home values.
The experts agree when the foreclosure rate reaches the historic pace of 1% of mortgages from the current 3.3% and down from the 2009 peak of 4.6% the housing recovery will have the solid foundation it needs for a healthy real estate market.
What do fewer foreclosures mean to the Santa Barbara real estate market? The bad news is there are fewer bargains out there for buyers. The good news is home owners who were under loan value have moved to either neutral or positive equity. Credit for this is given partially to stricter underwriting standards that’s helped eliminate new defaults in the foreclosure pipeline.
This all adds up to a healthy real estate market that is better for investors to operate in because when prices are rising it’s easier to sell houses.
If you’re a buyer there are a lot of value properties still available. The market is 3 ½ years away of recouping the negative equity where 23% of home owners remain. A balanced market is under 5%.
For sellers many have regained enough equity to comfortably sell a home they’ve owned for years but had a hard time psychologically giving up the paper equity they once had.
To paraphrase our baseball centric manger we’re in the 7th inning.
I think we’re in the sweet spot!