Realty Insites: Silver lining in bleak foreclosure numbers
Updated: July 30, 2012 11:51AM
Earlier this month, Bloomberg reported that Illinois foreclosures jumped 45 percent last quarter — a sobering statistic for our state and a harsh reality for those experiencing the process firsthand. Yet, according to economists, such bad news might actually be the precursor to recovery.
Foreclosure starts — notices of default or scheduled auctions — increased in 31 states in the second quarter, year over year, according to Realty Trac, a national housing data resource. California, which had an 18 percent increase in June, now has the highest foreclosure rate in the nation.
Nevertheless, several of the experts cited in the Bloomberg report felt more encouraged than discouraged by these seemingly negative statistics.
Daren Blomquist, a spokesman for Realty Trac, said, “The market has to deal with these distressed properties at some point, and I believe we’ve delayed it long enough, so seeing these increases isn’t necessarily a bad thing.”
Blomquist is among many realty experts anxious for the so-called shadow inventory of distressed homes to disappear. These include properties with mortgages at least 90 days delinquent, in foreclosure, or already owned by banks. Banks have been unable to deal with many of these distressed properties since late 2010, when state attorneys general and federal regulators imposed a moratorium as they investigated abuses, including lost or doctored paperwork. As soon as the nation’s five biggest banks settled the probe in February, repossessions started up again in earnest.
Anthony B. Sanders, an economics professor at George Mason University in Fairfax, Va., told Bloomberg, “You have to get to the point where the market can heal itself, and foreclosures and price adjustments are the only way that can happen.”
Sanders may be getting his wish. Nationally, initial notices of foreclosure jumped six percent in the second quarter from a year earlier, the first annual increase since 2009, according to RealtyTrac. Banks are also being increasingly proactive in seeking alternatives to final repossession, either by working with the borrower or by agreeing to sell properties for less than what was owed.
What’s the fallout of this more aggressive foreclosure push? Well, for starters, Realty Trac reports that the foreclosure process in the U.S. increased to an average of 378 days, the highest since 2007. It’s still not pretty out there.
Daria Andrews of Prudential Rubloff in Lake Forest has helped her clients work through several foreclosure scenarios this year. She said, “It’s a challenging process on all sides and often frustrating for everyone involved. A lot depends on the bank you are dealing with and how much patience and time you have.”
Will more foreclosures affect prices? Mark Zandi, chief economist of Moody’s Analytics, believes the impact will be minimal. He sees more benefit than harm, and forecasts a one percent price decline nationally this year, and a one percent increase in 2013.
Julie Morse is a licensed
real estate agent.