Foreclosure Filings Drop Nationally

Today RealtyTrac® released its February U.S. Foreclosure Market Report.

The RealtyTrac report shows that foreclosure filings, which include default notices, scheduled auctions, and bank repossessions declined 2 percent from January. A total of 308,524 properties in the United States received one of the listed notices during the month. This equates to 1 house in every 418. Compare that to January’s ratio of 1 in every 409. That works out to a 10% month over month improvement. However, when comparing data from one year ago (Feb 2009), the ratio is 6% worse. 

James J. Saccacio, chief executive officer of RealtyTrac says, “The 6 percent year-over-year increase we saw in February was the smallest annual increase we’ve seen since January 2006, when we began calculating year-over-year increases, but it still marked the 50th consecutive month of year-over-year increases in foreclosure activity.”

He also noted that this leveling of the foreclosure trend is not necessarily evidence that fewer homeowners are in distress and at risk of foreclosing and gave much credit to foreclosure prevention programs, legislation and other processing delays, which are in effect capping monthly foreclosure activity – albeit at a historically high levels that are not likely to slow in the extended future.

Foreclosure prevention policies and government legislation may be artificially distorting supply and demand equilibrium in the housing market. Because banks are allowing delinquent borrowers to remain in their homes, the actual amount of existing homes inventory is unknown or not reflecting these would be foreclosures (shadow inventory).  From an economic perspective it is much more efficient for a bank to allow the homeowner continue to occupy the property, that way it is kept in a condition that allows for faster liquidation at a future date. This gives  the bank it’s best opportunity to recover lost principle and it’s certaintly a better option than sending the property to auction.

With demand still recovering in the housing market, banks may continue to hold inventory until market demand is more accommodating of new supply.  The question is, will the number of qualified and willing buyers be there to support the market if there is an influx of “shadow inventory”?