July 29, 2008

Foreclosures Move Housing Market Toward a Bottom

Painful as it is, the housing market is gradually moving toward a bottom with foreclosures leading the long, forced march.

Last week the National Association of Realtors reported that existing home sales declined again as the number of homes for sale continued to rise. Roughly one-third of the existing home sales for the second quarter were foreclosures.

This week, the OFHEO, a government agency, reported home prices registered another drop in May over the same time last year.

RealtyTrac reported that 220,000 homes in the second quarter were chalked up to foreclosure filings, which include default notices, auction sale notices and bank repossessions. That's a 121% increase from the same period in 2007. That’s a tough nut to swallow under anyone’s scenario.

Although most states registered an increase in foreclosure filings over 2007, the “hot spots” for foreclosures are so intense as to absorb a substantial portion of the overall foreclosure numbers. The overall downward pressure from foreclosures creates a negative push on home prices on a national level, but the areas with less foreclosure pain will enjoy greater price stability and continued reduction in inventory levels in both new, existing, and distress-class sales.

The Wall Street Journal reports that analysts at Barclays expect the overall foreclosure total to rise 60% before peaking in late 2009. If that prediction is true, this will be the ugliest year in real estate annuls but it could mean the bottom is in sight.

The WSJ writes that a housing market is considered "roughly in balance when the number of homes listed for sale is enough to last about six months at the current sales rate. Based on the average sales rate over the past year, The Wall Street Journal survey shows that supplies are enough to last about 13 months in the Atlanta and Phoenix areas, 15 months in Chicago, 19 months in Las Vegas, and 37 months in Miami-Fort Lauderdale. For condominiums alone in Miami-Dade County, the supply is enough to last 51 months."

BusinessWeek working with Case-Shiller data from Moody’s came up with 20 states where the largest share of foreclosures and other distressed sales made up the largest share of existing home sales.

Where the news was bad, it was really bad. No surprise that California came in at the top of the list with a staggering 41 percent of existing home sales made up by foreclosures in the second quarter as compared to 9 percent in last year’s same time period.

Nevada did not fare much better at 40 percent. Arizona and Florida as part of the regular foreclosure parade were in the top 10. But it is the colder climate states that are taking foreclosure hits on the chin, and as fall approaches it looks like the big chill will set in.

Here are the 2007/2008 foreclosure percentages of existing home sales tallied from the highest state rankings from the second quarter of both years:

California – 41% in 2008 VS 9% in 2007

Nevada – 40% in 2008 VS 11% in 2007

Connecticut – 27% in 2008 VS 12% in 2007

Michigan – 26% in 2008 VS 20% in 2007

Ohio – 26% in 2008 VS 20% in 2007

Florida – 25% in 2008 VS 6% in 2007

Arizona – 25% in 2008 VS 5% in 2007

Massachusetts - 24% in 2008 VS 8% in 2007

Maryland – 23% in 2008 VS 6% in 2007

Rhode Island – 22% in 2008 VS 9% in 2007

Minnesota – 21% in 2008 VS 11% in 2007

Maine – 20% in 2008 VS 10% in 2007

Colorado – 19% in 2008 VS 13% in 2007

Indiana – 19% in 2008 VS 17% in 2007

Kentucky – 19% in 2008 VS 12% in 2007

Illinois – 18% in 2008 VS 11% in 2007

Virginia – 18% in 2008 VS 5% in 2007

New Hampshire – 18% in 2008 VS 10% in 2007

Delaware – 18% in 2008 VS 10% in 2007

Pennsylvania – 17% in 2008 VS 13% in 2007

Painful stuff.


Robby Schultz said...

It was nice that Georgia did make the 20 listed. Also, 60% of what will be foreclosures?

Gerry Davidson said...

There is no federal regulator keeping score when it comes to the foreclosure numbers. That means that the data originator can literally make the numbers sing.

Although Georgia did not make Moody’s 2nd quarter top 20 list of states with the largest percentage of foreclosed homes on the market, it did make the top 10 for 2nd quarter foreclosed filings from RealtyTrac. As a matter of fact their showing was at #8 which was an improvement over a previous #6 position. Atlanta came in at #20 for metro areas.

Moody’s numbers based on Case-Shiller data is based on homes already foreclosed and on the market. RealtyTrac is based on foreclosed filings that include (here’s the key) default notices, auction sale notices and bank repossessions. Notices, not necessarily foreclosed. A little misleading if you ask me.

RealtyTrac says foreclosures have already totaled 1.4 million so far this year – according to their data.

RealtyTrac reports that there were 220,000 foreclosure filings in the 2nd quarter which was up 121% from same period in 2007.

Barclays estimates that foreclosures will rise another 60% by the end of 2009 and is projecting data for foreclosed homes actually on the market – not filings. A smaller number than the RealtyTrac reporting’s. Barclays says there are a total of 721,000 foreclosed homes on the market nationwide which doesn’t include foreclosed homes already sold to third parties. Two years ago (generally considered ground zero in foreclosure data) the number of foreclosed homes on the market was 112,000. Barclays’ estimate of an increase of 60% would represent another 432,600 homes being added to the market through next year.

Actual, verifiable numbers, vs. filings which represent trends.

Although RealtyTrac is the best known and most often quoted foreclosure scorekeeper, their numbers can be dramatically downsized by reality, as is often pointed out in the press. Their numbers are certainly more dramatic.

However you look at it, it is trouble.