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Foreclosure “Wave” Not Coming

The mythical "wave" of Foreclosure properties is not headed our way anytime soon.

“We continue to see reports that there will be a wave of foreclosure sales after the election or at the start of the year.  The lack of Foreclosure Starts this month puts a nail in the coffin of this theory. ” Sean O’Toole President/Founder – Foreclosure Radar

For some time there has been talk of a massive wave of foreclosures yet to come. My magic eight ball says “all signs point to NO“. I have had several conversations with REO (bank owned) listing agents who have told me the same thing. The banks are telling them that the reason they are not getting listings is simply because they don’t have them. They have cleared the inventory for the most part.

Take a look at some stats-

  • California Notices of Default (the start of the foreclosure process) are down 23.6% from one month ago and 49% from one year ago.
  • Contra Costa County NODs are down 12.4% for the month and 46.2% for the year

If you want to buy a Bank Owned property or pick up a home at the courthouse steps, you better do it now. Regular sales and Short-Sales are the “Wave” of the future. On second thought they are the “Wave” of now.

Comments? Questions? You can post them below or email me at cbosse@rockcliff.com

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Ophelia OBrien September 11, 2012 at 10:02 pm
It is possible that the banks don't know what inventory they have in the pike. My friend just had her house sold at auction three years, yes 3 years, after receiving a notice of default.
Craig Bosse September 12, 2012 at 06:10 pm
Hi Ophelia, Thanks for commenting and you bring up a good point. It does take the banks quite a while to foreclose, however most of them would be much faster than 3 years. I have researched the subject from several different angles and I believe the foreclosure "wave" is over. Yes, there will still be foreclosures, and there are still many homes that are underwater or behind on payments, but it is only a fraction of what was 5 years ago. We have seen a drastic increase in the number of successful short-sales and loan mods over the past year or two which has taken many homes out of the foreclosure loop. The banks do not want to foreclose and are giving homeowners $$ to successfully short sell.
Craig Bosse September 12, 2012 at 06:16 pm
Here is a related post - http://walnutcreek.patch.com/blog_posts/ask-the-realtor-homeowners-being-paid-to-short-sell-no-need-to-be-behind-on-payments
Eastofthehills September 17, 2012 at 01:40 pm
Foreclosure starts have held constant around 180K-200K per month for the past year and about 20% of loans nationwide in current status are underwater (~24% in California) Additionally foreclosures are still pretty high as a % of total active loans. I wouldn't hold my breath as firms like LPS and the banks can definately draw out the foreclosure process. Additionally just because a property is an REO doesn't mean the bank is in any hurry to get rid of it. Even if a book value of a property is written down you don't take an actual loss until you dispose of the property and my bet is that no bank wants to take a bunch of REO sales losses write now. If I remember my accounting correctly I think REO writedowns go into accurals on the book and you don't actually realize the loss until the sale of the asset. So if the loss on the sale would be greater than the accural the bank probably wouldn't be interested in selling the property right now.
We won't see a 2009 free for all again, probably a wave of foreclosures holding down prices, but no tsunami of foreclosures crushing prices. just my 10 cents http://www.lpsvcs.com/LPSCorporateInformation/CommunicationCenter/DataReports/Pages/Mortgage-Monitor.aspx
Craig Bosse September 17, 2012 at 07:18 pm
Hi Eastofthehills - Thank you for your comment.
My blog is focused on the Concord/Walnut Creek area and not so much on the national statistics. The way I see it is if the banks had all of this inventory, why not release some of it now? Prices are up and there is a huge "shadow inventory" of buyers. The housing inventory is very short at under a one month supply in Walnut Creek and surrounding areas. The banks releasing a few homes would not hurt prices. Just because a home is "under water" does not mean that it will lead to a foreclosure. Plenty of homeowners will keep paying if they can until the market comes back or they will short-sell/loan mod if they can no longer afford it. Foreclosure starts in this area are down dramatically - http://www.foreclosureradar.com/foreclosure-report/foreclosure-report-august-2012
Craig Bosse October 5, 2012 at 09:57 pm
UPDATE - LPS showing delinquency decline - http://www.prnewswire.com/news-releases/lps-first-look-mortgage-report-august-month-end-data-shows-continued-decline-in-delinquencies-170972011.html
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