Foreclosures Drop Is Just a Drop in the Bucket
The headlines blared last week about a 27 percent drop in foreclosures, after RealtyTrac released their U.S. Foreclosure Market Report for February. On the surface, it looked like maybe it was positive. And most journalists covered the release as good news for the housing market. But when examined closely, it is perhaps just the opposite: another sign of how depressed the housing market really is.
To their credit, the professionals at RealtyTrac went on to give what seems to be a real analysis of what is going on: "Foreclosure activity dropped to a 36-month low in February as allegations of improper foreclosure processing continued to dog the mortgage servicing industry and disrupt court dockets," said James J. Saccio, chief executive officer of RealtyTrac. "While a small part of February's decrease can be attributed to it being a short month and bad weather, the bottom line is that the industry is in the midst of a major overhaul that has severely restricted its capacity to process foreclosures. We expect to see the numbers bounce back, but that will likely take several months."
So, what exactly does that mean?
First, it means that the drop in the actual number is more a reflection of delays in the legal process foreclosed' homes for sale, so called REO inventory at banks is not really slowing down. That pipeline is a big part of what we call shadow inventory, the size of which is getting bigger as home values continue to drop. And that shadow inventory is a big problem for home prices. Simply put many more sellers than buyers. Not the environment in which prices will naturally go up. But to us, the real key is that this is another example of how homeowners, homebuyers and everyone else who wants to know what the real story is need to be careful about how they interpret what they read and hear.
In my last column, I pointed out that there are a large number of data released about housing and that, unfortunately, more often than not; the headlines that accompany the data do not capture the whole story. Now as we head into the spring, the normal start of home buying season, it becomes crucial that participants pay close attention to the details, not just the headlines. No one wants to buy a house in a neighborhood where it looks like foreclosures have stopped coming, only to find out they were not going away, only being delayed. Without a close look, everyone is at some risk of being drawn to the wrong conclusion.
We will continue to call the market as we see it. And we hope that will help.
Michael Feder is CEO and president of Radar Logic Inc., a New York-based data and analytics company that produces the RPX value for housing markets in the United States.
For more on mortgages and related topics see these AOL Real Estate guides:
- Stop Foreclosure Scammers Before They Scam You
- How to Get a Low Mortgage Rate
- Mortgage Jargon in Simple Terms
- How Much Home Can I Afford?
- How to Buy Foreclosures
- Closing Costs: How Much to Budget
- Guide to Settlement and Escrow