Despite a shortage of lower priced homes in markets across the country, the huge foreclosure inventory refused to decline in June, raising renewed fears that the overhang of discounted properties will put downward pressure on home prices.
CoreLogic today reported that in June 2012only 60,000 foreclosures completed were either sold at auction or returned to lenders to be sold as REOs, compared to 80,000 in June 2011 and 60,000 in May 2012.
Approximately 1.4 million homes, or 3.4 percent of all homes with a mortgage, were in the national foreclosure inventory as of June 2012 compared to 1.5 million, or 3.5 percent, in June 2011. Month-over-month, the national foreclosure inventory was unchanged from May 2012 to June 2012. The foreclosure inventory is the share of all mortgaged homes in some stage of the foreclosure process.
The inventory represents more than the total number of foreclosures completed last year- either sold at auction or returned to lenders to be sold as REOs. In 2011 some 830,000 were completed and in 2010, 1.1 million. Since the financial crisis began in September 2008, there have been approximately 3.7 million completed foreclosures across the country.
“While completed foreclosures and real-estate owned (REO) sales virtually offset each other over the past four months, producing static levels of foreclosure inventory for most of this year, they are beginning to diverge again,” said Mark Fleming, chief economist for CoreLogic. “Over the last two months REO sales declined while completed foreclosures leveled out. So we could see foreclosure inventory rising going forward.”
“The decline in the flow of completed foreclosures to pre-financial crisis levels is more welcome news pointing to an emerging housing market recovery,” said Anand Nallathambi, president and CEO of CoreLogic. “However, we believe even more can be done to reduce the inventory of foreclosures by decreasing the level of regulatory uncertainty and expanding alternatives to foreclosure.”
If parceled out evenly across the nation, the inventory will double the number of foreclosures on the market for more than a year. However, inventories vary by state and market. “Judicial” states, where a court order is necessary to foreclose, typically take longer to process foreclosures and during the processing slowdown of the past two years, lenders concerned with liability issues moved even more slowly in judicial states.
As a result, the foreclosure backlog is significantly higher in a handful of states, which will feel the brunt of the inventory. In these states, more foreclosures will be released into their local markets over a longer period of time unless lenders find ways to mitigate the impact, such REO-to-rental programs that take foreclosures off the market turn them into single family markets.
According to CoreLogic, today the five states with the highest foreclosure inventory as a percentage of all mortgaged homes are: Florida (11.5 percent), New Jersey (6.5 percent), New York (5.1 percent), Illinois (5.0 percent) and Nevada (4.8 percent). All except Nevada are judicial states. However, Nevada recently enacted legislation designed to protect homeowners from improper foreclosures that has greatly slowed processing. The five states with the highest number of completed foreclosures for the 12 months ending in June 2012 were: California (125,000), Florida (91,000), Michigan (58,000), Texas (56,000) and Georgia (55,000). These five states account for 48.4 percent of all completed foreclosures nationally.
Currently, demand for lower priced homes is high, due to the high levels of negative equity and the slow processing of foreclosures, which have created an inventory drought in many markes, especially for lower prices homes. Demand is increasing as many first time buyers and inventors are entering the market as prices slowly been rising this year. (See Frozen Foreclosures Frustrate Buyers).
Markets where inventories have actually increased in June over the past year are: Baltimore-Towson, MD (1.4 percent increase); Washington-Arlington-Alexandria, DC-VA-MD-WV (0.3 percent increase); Philadelphia, PA (0.5 percent increase); New York-White Plains-Wayne, NY-NJ (0.3 percent increase); Nassau-Suffolk, NY (0.9 percent increase); and Edison, NJ (0.2 percent increase). All are in judicial states.