At best, an increase in foreclosures takes a double-edged sword to the housing market. On the one hand, it means we may be inchingtoward stabilization, as shadow inventory begins to move through the pipeline. On the other, it spells more stress for beleaguered homeowners and puts downward pressure on home prices.
Housing economists predict that the next wave of foreclosures is about to hit, following the recent settlement between government and lenders in the "robo-signing" scandal. No doubt it will still cause pain to hard-pressed borrowers. But in a break from the past, it may avoid depressing home prices.
"There are countervailing strengths," said Mark Fleming, chief economist at CoreLogic, an analytics firm. "We could very well see increasing prices in some markets this year, even though they have significant shadow inventories." The "shadow inventory" is the overhang of homes expected to move through foreclosure that are not yet listed on the market.
A report from CoreLogic released today said that completed foreclosures edged down from 71,000 in January to 65,000 in February, and that the number of homes in a state of foreclosure has shrunk by 115,000 homes from February 2011 to 1.4 million homes in February 2012.
Despite the slight month-over-month drop, foreclosure activity has remained relatively steady recently, but economists predict that it will rise in the coming months because of the resolution of an investigation into illegal foreclosures between the government and major mortgage servicers.
Fleming told AOL Real Estate that the housing market may feel the impact of the robo-signing settlement during the summer, after the five banks involved in the settlement implement government-approved foreclosure practices.
"All of this will result in more foreclosure pain in the short term as some of the foreclosures that should have happened last year instead happen this year," Daren Blomquist, vice president of online foreclosure marketplace RealtyTrac, said in February. The economist predicts that completed foreclosures will jump by 25 percent in 2012, totaling 1 million.
But since the market must eventually absorb the excess supply of foreclosed homes, breaking the foreclosure logjam isn't necessarily a bad thing. "I would like to see the pace increase, because that means we'll be able to work off the inventory faster," Fleming said. And the downward pressure on prices that's caused by an increase in foreclosures may be mitigated by improvements observed lately in other sectors of the market, as well as the economy as a whole, he says.
For some towns, price recoveries have been in the works for some time. Florida, in particular, lays claim to quite a few markets that appear to be firing on all cylinders, and posting the price gains to show for it.
With the help of our friends at Realtor.com, AOL Real Estate brings you homes from the metro areas that posted the greatest year-over-year median price increases in February, as measured by Realtor.com listings. If a national price recovery is happening, these are some of the towns leading the charge.
Location: Sarasota-Bradenton, Fla.
Median Price Increase: 14.47 percent
Home Price: $5.479 million
Sq. Ft.: 5,286
This home, apparently recognized as a local architectural achievement, uses the material terrazzo, a combination of granite or marble and concrete, for its indoor and outdoor flooring.
Location: Naples, Fla.
Median Price Increase: 15.67 percent
Home Price: $11.95 million
Sq. Ft.: 7,890
She's not hard to look at, is she? One of the many things this mouth-watering residence has going for it is its gigantic, resort-style pool. The home also has 127 feet of waterfront, and its many columns, inside and out, give the place regal flair.
Location: Washington, D.C.
Median Price Increase: 18.45 percent
Home Price: $7.495 million
Sq. Ft.: 9,710
Throw down for this stately manse and you'll win the right to call Joe Biden neighbor. Vicey himself lives in the neighborhood. The Tudor-style home has 17-inch stone walls that are stitched with timber and brick.
Location: West Palm Beach-Boca Raton, Fla.
Median Price Increase: 18.48 percent
Home Price: $3.4 million
Sq. Ft.: 7,043
This lavish mansion boasts membership in Harbour Isles, a ritzy, secluded community. In fact, ever single home has a dock, according to the listing. The 7,000-square-foot home has over 90 feet of waterfront for itself.
Location: Punta Gorda, Fla.
Median Price Increase: 19.35 percent
Home Price: $1.15 million
Sq. Ft.: 3,950
Overlooking a stretch of creek, this luxury property spans four verdant acres. Of all the interior highlights, the great room really caught our eye, thanks to some creative copy on the part of the property's listing description. Inside the cavernous room, the "Built in Wood/Gas Fireplace is perfect for snuggling on [the] occasional cool Florida evening," the description says.
Location: Phoenix-Mesa, Ariz.
Median Price Increase: 20.62 percent
Home Price: $4 million
Sq. Ft.: 9,309
Located in the city that posted the second-highest year-over-year increase in home prices for February, according to Realtor.com, this $4 million mansion features marble and oak floors, beveled glass windows and custom cabinetry. Oh, and also close to 10,000 square feet of space.
A recent report provided one of the most hopeful signs of recovery for the housing market yet. John Burns Real Estate Consulting found that home prices actually have risen marginally since January. The company says that its gauge of the market, the Burns Home Value Index, eliminates a three-month lag time that distorts other indices by recording contract signings of home purchases, not closings.
Its finding conflicts with most other indices, though, such as the Standard & Poor's/Case-Shiller home-price index, which showed a drop in home prices in January.