A 10.1% increase in existing home sales is good news, unfortunately, in recent years, good news in housing means little when compared to the bad. This time, foreclosure filings and negative equity increases make up the bad.
According to RealtyTrac, foreclosure filings during the third quarter of this year have increased 23% when compared to the same quarter in 2008. The report states that there were 937,840 properties that foreclosures were filed on during the third quarter. Out of the 937,840 properties that had foreclosure filings, over half of them were located in just four states: Arizona (50,342), California (250,054), Florida (156,924) and Nevada (47,925). These four states account for 505,245 of the 937,840 foreclosure filings; Georgia (33,385) and Texas (29,838) made the top ten list. Unfortunately for many large home builders, the states on the top 10 list accounted for a large portion of pre-crash sales.
Nationally, almost 1 in every 136 households received a filing of foreclosure during the third quarter of 2009. That number is the highest it has been for any quarter since RealtyTrac began tracking foreclosure filings and issuing reports in 2005. It’s a shocking amount, but nothing compared to Nevada’s 1 in every 23 households and Arizona and California’s 1 in every 53 households. The only good news, if it can be considered good, is that foreclosure activity isn’t horrible in every state, the top ten states are enduring most of it.
Added to these figures is another number that indicates that foreclosure numbers could very well continue to rise; the amount of homes in some stage of the foreclosure process increased 5% from the second quarter.
Market watchers expect the number of foreclosures to peak near the end of 2010.
Main factors that are expected to contribute to a rise in foreclosures
Lenders considering whether or not a borrower’s delinquent loans are eligible for a mortgage modification is one factor. Once that process is over, those borrowers who do not qualify for loan modification will be foreclosed on.
1. The nation’s unemployment rate is over 10%, and the job outlook isn’t looking better
2. Negative Equity is increasing; nearly 25% of all residential properties are underwater
3. Option-ARM loans are going to continue to reset with the majority of the resets occurring in 2010 and 2011.
*According to First American Corelogic, there are currently around 2,800,000 active interest-only loans with an outstanding principal balance of about $908 billion. The problem with interest only loans is that the loan’s low monthly payments are based off of interest only payments. After 5 to 7 years, the monthly payment amount rises drastically (sometimes as much as double) when the principal is included. The payment increase coupled with high unemployment rates and negative equity will most likely bring about a large number of foreclosures through most of 2010 and 2011.
A look at negative equity…
In a recent study, First American Corelogic found that 23% of all U.S. homes are “underwater”, this means that nearly a 1/4 of American mortgage holders owes more on their mortgage than the home is worth. That’s almost 10.7 million residential properties with mortgage debt of $2.9 trillon. In addition, 2.3 million more mortgages are approaching negative equity (they have less than 5 percent equity); negative equity is a major reason why investors and borrowers default.
These numbers indicate that the real estate markets in some of America’s largest states (by population) will likely have a rough couple years. Foreclosures will help decrease the value of homes, which will increase the number of “underwater” homeowners and the viscous cycle will continue. Hopefully, banks can find a way to calm this without any more help from the government – effective mortgage modifications could be a good start.
Source:
U.S. Foreclosure Activity Increases 5 Percent in Q3
The Negative Equity Report – Sign up for access to the report
Stocks Gain on Home Sales Data
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I wonder how long it is going to last and what the next change is going to be.
Foreclosure is really not that good in real estate market, sometimes it is better to short sale properties to avoid foreclosure but make sure person is capable to pay the amount given.
This is a bad news indeed,but let’s just see the bright side real state industry today. The sales increases and that is the thing that the realtors should keep in mind.
Until the unemployment problems are fixed foreclosures are going to keep on coming. Along with it comes lower home prices and more negative equity and even more foreclosures. Don’t forget about all the ARM’s that will be readjusting over the next couple of years. This will be another huge problem for the housing market. Hopefully jobs will return before the ARM reset!
@Boris – I think we’re all wondering how long it will last. Post 2012 looks good for loan resets, but we might still have a lot of inventory to go through.
@McKinley – It is good to stay positive, but I like to be realistic too and the home sales data isn’t very realistic. There are too many factors in this market that wouldn’t be in a regular market i.e. foreclosures, short sales, govt. incentives
@Matt – I’m hoping jobs come back soon. Hopefully, the President will make the economy a major priority in the near future.
Your review of the negative equity situation is alarming. 23% of homes are under water? It would seem to me that this will have to change significantly before the economy will see significant improvement.
I think these statistics are always going to correlate with the unemployment rate. My biggest concern and question is, when do you expect to see fewer foreclosures, and what are some things that home owners can do to help guard them from foreclosure?
The unemployment rate and foreclosures goes always hand in hand. When the unemployment figures go down, goes foreclosures also down, and we are back in good business again.
This material matches up with what was discussed during my CDPE training. I think the foreclosures have just begun. It’s important for us to inform homeowners that they have options!