Increase in Foreclosures Nationwide

While most pundits have been cheering the “real estate recovery,” we have been quietly biting our lips. From what we can tell, based on our clients currently in the foreclosure process, the problem is still far from over.

Recently published data suggests that our cautious pessimism may be warranted.

According to a report from RealtyTrac, more than half of the nation’s largest metropolitan areas experienced an upturn in foreclosure activity in 2012, compared to 2011.

As part of the company’s “2012 Year-End Metropolitan Foreclosure Market Report,” RealtyTrac observed foreclosure trends in 212 markets with a population of 200,000 or more, and found that 120 (57 percent) of the observed markets displayed an increase in foreclosure activity from 2011. At its peak, foreclosure activity was up in 181 (85 percent) out of the 212 metro areas tracked in 2010.

“Markets with increasing foreclosure activity in 2012 took the first step in finally purging delayed distress left over from the bursting housing bubble,” said Daren Blomquist, vice president at RealtyTrac. “Meanwhile, the underlying fundamentals in many of those markets are slowly improving, making it an opportune time to absorb additional foreclosure inventory this year — and that is particularly good news for buyers and investors hungry for more inventory to purchase in those markets.”

There is no question that the historical low interest rates, coupled with the low supply of homes, have made this somewhat of a seller’s market. The problems we see are as follows:

• What happens if/when interest rates rise? Prices will drop as the purchasing power of the average buyer drops. Simple mathematics here.
• What about the large ‘shadow inventory’ of bank owned homes and properties in which mortgages are delinquent? The numbers are huge, and they have to be addressed at some point. Perhaps the market can absorb them? Perhaps not? Only time will tell.
• The new generation of buyers (20-30 year olds) are burdened with unprecedented student loan debt and poor job prospects. Will the buyers be able to support this market over the next five to 10 years? It’s too soon to make a call on this issue as political forces may alleviate the student debt problem. Nevertheless, it is certainly an issue that will play a role in the real estate market and general economy for years to come.

Have questions regarding the foreclosure or short sale process? Contact one of our Kirkland real estate attorneys.