Drop in foreclosures doesn’t mean recovery is here
Letter to the Editor
By Inman News, Friday, May 4, 2012.
Re: ‘Foreclosure activity hits lowest level since Q4 2007‘ (April 12)
As a Realtor and real estate investor, I follow the housing market very closely and read as many articles as I can. I believe there may be an oversight on reports of a housing recovery and drop in foreclosures.
I’m from Nevada, a state heavily hit by the foreclosure crisis. For this reason, our market has been very volatile. We have recently seen a stabilization and even a turn for the better, or so it seems. Some are claiming we’ve hit bottom since our inventory has dropped, bidding wars are becoming common and prices are beginning to rise.Article continues below
I think a lot of those people are trying to encourage sales by getting leery buyers off of the fence. Who wouldn’t want to believe the economy is finally improving? Unfortunately, in my opinion, there’s a very important piece of data that’s being overlooked and is changing the market in incredible ways.
Our notice of defaults (NODs), the first step in the foreclosure process, came to a near-complete stop at the end of 2011.
There was a new Nevada state law, AB 284, that went into effect Oct. 1, 2011. The new law requires banks to come up with specific documentation in order to foreclose on a property. The law caused the NODs to drop to around 20 homes per month since October.
Our NODs had previously been ranging between 500 and 700 on average, per month, in Washoe County (northern Nevada) alone.
The robo-signing settlement has apparently helped and the NODs appear to be gaining momentum again. I figure it will take four to six months before the effects of AB 284 are truly realized within the market.
It’s possible there are 3,000 homes, maybe more (based upon prior figures, six months’ inventory at 500 homes a month), that have been postponed from the foreclosure process moving forward under the law. Keep in mind this figure is for only one county in the state of Nevada: Washoe County.
To put the numbers into perspective, it’s best to know the real figures. There are approximately 5,000 homes on the MLS listed as “active” on the market today. Of those, the majority are distressed sales, which take longer to close. The number of homes that are truly available for a buyer looking to purchase is less than half of that — around 2,300 homes.
The others are pending sales. As the banks determine what’s needed, I foresee an additional 3,000 backlogged foreclosures hitting the market, along with a resumption in new notice of default filings. This is sure to have an impact on our market. But very few are discussing it.
My prediction is that when the banks do begin filing again, we’re likely to see the average number of foreclosed homes go up higher than the previous average. Basic supply and demand tells me we haven’t seen the bottom of this just yet.
I’m unaware of other states that may have implemented similar laws, but it wouldn’t surprise me if there are others. I believe our law mimics a law Florida adopted around the same time.
With Nevada being a top state for foreclosures, just Nevada’s change in figures may be painting a rosier picture for the national economy and its claimed recovery. I’m not convinced.
Realtor, broker, agent
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