US Foreclosure Rates Falling

The newest report from CoreLogic shows that foreclosure activity dropped in May as the U.S. continues forward in its housing market recovery. The foreclosure inventory is also shrinking and seriously delinquent loans are at their lowest level since the end of 2008. Part of it is due to an improving economy and more positive activity in the housing sector, but it’s also because many banks have chosen to deal with delinquency by way of short sales and loan modifications rather than enter into costly foreclosures. Experts say the overall impact contributes to rising home prices and even more sales activity, further boosting the recovery. 

Fewer homes were lost to foreclosure in May and the total number of homes in the foreclosure process continued to decline, according to the latest report from real estate analytics provider CoreLogic.

The number of completed foreclosures dropped 27% year-over-year in May to 52,000. Month-over-month, completed foreclosures rose 3.5%.

Completed foreclosures represent the number of homes actually lost to foreclosure. Since the crisis began in September 2008, there have been 4.4 million completed foreclosures. Prior to the crisis, completed foreclosures averaged 21,000 a month, less than half the current pace.

Still, the latest reports continue to support the view that the foreclosure crisis is slowly moving behind us.

The number of homes in some stage of foreclosure was about 1 million in May, down 29% year-over-year. Month-over-month, the foreclosure inventory was down 3.3%. About 2.6% of all homes with a mortgage were in some stage of foreclosure, compared to 3.5% a year earlier.

Seriously delinquent loans -- loans that 90 days or more past due -- are now at their lowest level since December 2008, at 2.3 million mortgages.

The decline in seriously delinquent loans is significant because a good proportion of these loans could ultimately end up in foreclosure if they are not resolved. And mounting foreclosures add to the supply of distressed homes in the market, dragging down home prices.

Homes that could potentially wind up in foreclosure represent "shadow inventory" or pending supply that could hit the market.

As of April, the shadow inventory was under 2 million, or 5.3 months' supply.

For a long time time shadow inventory was seen as a threat to the housing market. However, that view changed as banks began to opt for short sales and loan modifications over a costly foreclosure process. An extremely lengthy foreclosure process, particularly in judicial foreclosure states, also slowed the pace of foreclosed homes hitting the market.

Ironically, the housing market now faces a housing shortage. The decline in foreclosures and shadow inventory has drained the excess supply of existing homes. Meanwhile, existing homeowners trapped with an underwater mortgage are unable to sell, while homebuilders are struggling to ramp up new construction.

This has caused a sharp rise in prices in the housing market, though rising mortgage rates might moderate price gains going forward.

Source: NuWire Investor