Mid Year - At A Glance:
According to RealtyTrac; in June 2010,nationwide 1 out of every 411 homes with an average sales price of $178,000 received foreclosure notices. In January 2010, 1 out of every 409 homes received foreclosure notices. Nationally,from January 2010 to June 2010, a total of 1,961,894 homes received foreclosure notices. This represents a 7 percent increase in filings from June 2009. Thanks to the recently enacted Making Home Affordable program, the loan modification industry is expected to become busier than ever as more foreclosures are expected to occur during the remaining months of 2010. While the economy is not as bad as it was at an earlier point of the recession, there are still concerns over how many foreclosures are still occurring nationwide. The second quarter was a tale of two trends said James J. Saccacio, chief executive officer of RealtyTrac. The pace of properties entering foreclosure slowed as lenders pre-empted or delayed foreclosure proceedings on delinquent properties with more aggressive short sale and loan modification initiatives. Meanwhile the pace of properties completing the foreclosure process through bank repossession quickened as lenders cleared out a backlog of distressed inventory delayed by foreclosure prevention efforts in 2009. The midyear numbers put the nation on pace to exceed 3 million properties with foreclosure filings by the end of the year, and more than 1 million bank repossessions, Saccacio continued. The roller coaster pattern of foreclosure activity over the past 12 months demonstrates that while the foreclosure problem is being managed on the surface, a massive number of distressed properties and underwater loans continue to sit just below the surface, threatening the fragile stability of the housing market.
A recent Mortgage Bankers Association report suggests that there are many people around the United States who are at risk of possibly going into foreclosure. This report indicates that one of out every seven mortgages in the United States is one month or greater behind in payments. This data is important because when a person is behind on payments that person is more likely to end up going into foreclosure or at least falling further behind before resorting to loan modification assistance or selling their home through a short sale or similar method. Consequently, home equity values have declined as well. Home equity is used as a means of helping to make sure that a person will be able to work with a good secured loan to take care of getting a mortgage paid off with each over time. However, the recent financial crisis has caused equity values to decline. Various reports suggest the amount of equity that people in the United States has declined over the years from 13 trillion dollars to approximately 5 trillion dollars. This is a massive decline that will take years to recoup and makes it harder for people to handle their loans and stay on solid financial ground. While the 8,000 home buyer tax credit added a short term boost to home sales nationwide, the program expired in April 2010 and absorption rates have since declined to previous levels. The program was also riddled with fraud and abuse. Some 100,000 of 350,000 credits issued are being investigated by the IRS. In spite of the fraud, the program was viewed as a success by Congress and the real estate industry, just a good step in the right direction by those who wanted to see a larger credit ($15,000) offered to home buyers and a complete waste of taxpayer money by others. The merits of this program can be debated from both ends of the spectrum.
The Road Ahead:
While it is clear some major challenges lay ahead, this is not a permanent situation. As long as The Federal Reserve keeps mortgage rates low in order to attract new and move up home buyers and make investment credit more readily available to investors, inventory should continue to be absorbed at a reasonable rate by the market. Mortgage rates have remained steady, hovering around the 4 percent mark for a 30 year fixed loan. It should also be noted that many banks are keeping foreclosures and distressed properties off the market in hopes of selling them in a stronger economy. This creates shadow inventory and will only prolong the market recovery process because the market cannot absorb what is not made available to it. Some experts believe this oversupplied market will be with us through year 2014, given the existence of shadow inventory and another anticipated wave of foreclosure activity caused by escalating adjustable rate mortgages that cannot be refinanced. Only time will tell