The Foreclosure Market today

I hear a lot of news items talking about how the property market has rebounded and that foreclosures are going away. While both of these statements are true to some extent, they don’t tell the whole story.

Price have undoubtedly improved since the bottom of the market locally was hit in 2011, after a brief uptick in 2010 for the previous low in 2009. But prices have fallen in the last two months by 33%. I think that will change as we get into the better weather and the traditional selling season, but it shows that the market is still volatile.

The picture for foreclosures is also somewhat different from the picture painted in the media. One of the main reasons that sales of foreclosures has declined over the last couple of years is that banks have been holding back in some cases and, in others, have sold homes in bulk to investment companies and hedge funds, rather than selling to the home-buying market.

The graphics that follow illustrate the current situation.

delinquencies

This chart shows that the normal rate of mortgage delinquencies is about 1.5%. At its peak that figure was 5% and today, although not illustrated here, it is still over 4%.

Another major factor is the size of the shadow inventory. Shadow inventory is not a measure of the number of distressed homes on the market, but rather an estimate of how many distressed homes have the potential to be listed on the market, taking into account mortgage cure rates and those properties that are seriously delinquent, in foreclosure or real-estate owned (REO) and not already listed for sale.

shadow

This chart shows that while the foreclosure (FCL) and the REO shadow inventories have declined, there is still a large number of homes in serious delinquency. Experience shows that most of these will eventually go into foreclosure.

The HUD contract for Virginia is due for renewal later this year and the current intention is that, instead of assets being handled by three big organizations (Matt Martin, Ofori and HomeTelos), they will be given to a number of smaller companies. It is expected that the change will occur in Q3 and there may well be an increase in the number of listings coming onto the market at that time.

So, for investors and home-buyers looking to take advantage of the discounted prices of distressed properties, there will be plenty of opportunities for the foreseeable future.

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