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Exclusive Report: Emerging Foreclosure Trends for 2012

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There was an abundance of good news on the foreclosure front in 2011 that might portend a rosy outlook for 2012 — at least at first blush.
                                                                                             
U.S. foreclosure activity was down on an annual basis in every month during the year through November, according to RealtyTrac’s monthly foreclosure market reports. These annual decreases put the nation on pace to have fewer than 2 million properties with foreclosure filings for the year, down more than 30 percent from the nearly 2.9 million properties with foreclosure filings in 2010. See our year-end 2011 foreclosure report being issued Jan. 12.

Foreclosure activity in 2011 is on track to be down more than 50 percent in several states, including New Jersey, Maryland and Florida.

In addition, the much-feared shadow inventory of foreclosures has declined dramatically over the course of the year. Inventory of properties in some stage of foreclosure or bank-owned (REO) has shrunk from a record high of more than 2.2 million in December 2010 to just under 1.5 million in September, according to RealtyTrac data. That’s a 32 percent drop in just nine months, and puts the estimated months’ supply of foreclosure inventory at just over one year.

Despite this seeming good news, the housing market has not completely escaped the clutches of this foreclosure crisis. Instead foreclosure processing delays in 2011 have artificially exaggerated what would have been a slow, natural decrease in foreclosure activity off the foreclosure peak of 2010. This artificial trough in foreclosure activity in 2011 will result in a corresponding double-peak in 2012.

Although this double-peak will most likely not be as severe as the previous peak of 2010 (or 2009 in some local markets), buyers, investors and real estate agents should brace themselves for a resurgent short sale and REO market this year — and look for the opportunities that more foreclosure activity may represent for them.

1. Flat home prices: Resurging foreclosure activity in 2012 will look less like a tsunami and more like a series of smaller waves rolling into shore over the course of the year — which should allow the market to absorb this inventory without another 20 or 30 percent hit to home prices. Still, the steady influx of foreclosure activity will also keep home prices from appreciating substantially during the year.

2. More foreclosure inventory and REO sales: Increasing foreclosure activity will slowly push the available foreclosure inventory higher, and that could be good news for buyers, investors and real estate agents in markets with a scarcity of inventory. In select markets hard-hit by the foreclosure crisis, local real estate professionals have been telling RealtyTrac for several months now about a shortage of inventory and bidding wars on foreclosure properties. This is happening in places like Stockton, Calif., and Detroit, where a member of the RealtyTrac Agent Network recently said he believes there is a “backlog of buyers” in his market just waiting on more properties to become available.

3. More short sales: Legal issues, property maintenance costs and other issues complicating the foreclosure process will lead lenders to more likely approve short sales in 2012. Many of the properties that started the foreclosure process in the third and fourth quarters of 2011 will end up as bank-owned properties in 2012, but many will also end up as short sales.

This all spells opportunity for buyers, investors and real estate agents in 2012. Prices and affordability will stay low, allowing buyers and investors to still find good bargains. Available inventory of pre-foreclosure and bank-owned property will increase, providing more options for those buyers to find the bargain they’re looking for. And lenders will continue to slowly streamline the process of selling both short sales and REO properties — making life easier for everyone involved.


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Comments

Corrections: Below I wrote, “a buyer around the Ontario Riverside County area was out-bid almost 50 times before she was able to have an offer accepted, and buy her home.” I meant, 1) the buyer was “out-bade...”; 2) I meant, Ontario, in the “Inland Empire” area - instead of Ontario Riverside County. The Inland Empire as it’s locally called, entails the Riverside and San Bernardino Counties. By the way, Fannie Mae is looking for international investors, which I think is a wrong strategy, since there are so many U.S. investors and buyers competing for properties here. Also, there are about 70,000 homeless veterans, why not start with them to provide homes and jobs to. Just a thought. Posted: January 14, 2012 by: tessmrqz
Lareoauthorqwerty writes below that some of my comments do not make sense. Well, I am in Southern California, writing about what I am experiencing in the trenches only, therefore, I am my best “source and statistics.” In this area, in the low-end market is where, 1) a buyer around the Ontario Riverside County area was out-bid almost 50 times before she was able to have an offer accepted, and buy her home; 2) in Hawthorne California a house had 113 offers before it was sold; 3) some agents have all-cash multiple offers & they discourage some buyers from making offers that involve financing - it has happened to me personally more than twice; 4) in the hi-end market, in downtown Los Angeles no less, a condo sold for $4 million today, Jan. 13, 2012 - it sold a day after it was listed,; 5) another condo sold also in the area for more than $5 million in Sept 2011; 6) many over $5 million properties have sold in WLA within the last 60 days, including the ones on Beverly for $16 million, on Elden for $10 million, etc. I could go on forever listing 200 plus facts as above, but I am writing only to share information as I experience it. The fact remains that it is all about location and if a property is selling at market value, it will sell within 30 days. Lareoauthorqwerty is right stating that many sellers are holding back, but most are savvy enough to know that as they sell for less, they in turn will buy for less with their proceeds. Yes, Fannie Mae and Freddie Mac will soon dump thousands of properties on the market but so far they have done pretty well, as soon as the properties come up for sale, they go into escrow, at least here in California. Also, some cities are buying properties by the hundreds, are fixing them and selling them to low income families who qualify for FHA financing; Fannie & Freddie are also looking into renting the properties as subsidized housing, which I think are good programs. Tessmrqz@yahoo.com http://teresa-marquez-aguilar.com/home Posted: January 13, 2012 by: tessmrqz
Thanks everyone for your comments! Posted: January 12, 2012 by: darenb
I am waiting for the prices to fell even more. The low interest rate is unsustainable, and when it finally goes up, the housing price will dramatically go down. This is what every buyer should be waiting for! This is what every young person is waiting for. Baby boomers by inflating housing prices displaced their own children from buyers market, nice isn't it! No young person can afford a house now. Our parents were buying houses in their 20ties. If not young, who is going to buy? ....oh, I forgot one day an "expert" was saying that foreigners will buy....ha, ha, ha. Posted: January 11, 2012 by: Bella11
I am waiting for the prices to fell even more. The low interest rate is unsustainable, and when it finally goes up, the housing price will dramatically go down. This is what every buyer should be waiting for! This is what every young person is waiting for. Baby boomers by inflating housing prices displaced their own children from buyers market, nice isn't it! No young person can afford a house now. Our parents were buying houses in their 20ties. If not young, who is going to buy? ....oh, I forgot one day an "expert" was saying that foreigners will buy....ha, ha, ha. Posted: January 11, 2012 by: Bella11
Regarding Terest Marquez Aguilar's comments about steadily rising prices, I'd be interested to know what market area she's referring to. I suggest you check your source and statistics regarding rising prices ... home prices are falling in almost every market area in the country. There are a few luxury markets where prices may have shown an increase, but these are by far the exception, NOT the rule. Nationwide, prices have fallen an average of 20% or more since 2008. Once the bloated inventories of REOs held in 'shadow inventory' by banks and other mortgage lenders hit the market, expect further price declines. And this does not count the planned 'bulk-sales' by Fannie Mae, Freddie Mac and FHA. That mass 'dumping' of REOS will not only depress prices further, but will force non-government lenders to cut prices on their REO inventory even further. If supply of homes for sale is indeed down, which I seriously doubt, it may be due to many homeowners don't even bother listing their homes for sale because they owe more on them than they're worth. Homeowners who aren't 'upside down,' and can afford their payments, are in no hurry to sell at today's prices. They'll simply sit and wait until market conditions improve. As for being 'outbid' on condos prices at $ 2.5 MILLION, where on earth are condos selling at that price? You can buy beachfront property in Malibu for less than that, and there are very few market areas in the California more expensive or desirable than Malibu beachfront. Something doesn't make sense here. Posted: January 11, 2012 by: lareoauthorqwerty
Prices have been going up steadily; many properties under certain value sell with multiple offers; many over $5 million properties were sold in California in 2011, and as many so far in 2012; I was not able to count the properties sold under $1 million because the program kept flashing that there were too many to obtain a list and for me to filter some more, etc. About two weeks ago, a buyer made offers, in three different four bedroom, $2,500,000 condominiums at asking price, and every time he was out-bid. I guess the reason prices have not gotten out of hand again is because the number of homeowners defaulting is still too high, balancing out the supply and demand - just an opinion. http://teresa-marquez-aguilar.com/home Posted: January 11, 2012 by: tessmrqz
Prices have been going up steadily; many properties under certain value sell with multiple offers; many over $5 million properties were sold in California in 2011, and as many so far in 2012; I was not able to count the properties sold under $1 million because the program kept flashing that there were too many to obtain a list and for me to filter some more, etc. About two weeks ago, a buyer made offers, in three different four bedroom, $2,500,000 condominiums at asking price, and every time he was out-bid. I guess the reason prices have not gotten out of hand again is because the number of homeowners defaulting is still too high, balancing out the supply and demand - just an opinion. http://teresa-marquez-aguilar.com/home Prices have been going up steadily; many properties under certain value sell with multiple offers; many over $5 million properties were sold in California in 2011, and as many so far in 2012; I was not able to count the properties sold under $1 million because the program kept flashing that there were too many to obtain a list and for me to filter some more, etc. About two weeks ago, a buyer made offers, in three different four bedroom, $2,500,000 condominiums at asking price, and every time he was out-bid. I guess the reason prices have not gotten out of hand again is because the number of homeowners defaulting is still too high, balancing out the supply and demand - just an opinion. http://teresa-marquez-aguilar.com/home Posted: January 11, 2012 by: tessmrqz
The previous comment makes a very good point. There are also a number of other flaws with the report and the conclusions it implies. The article begins by saying foreclosure activity was down in 2011, but goes on to say that 2012 will likely create a 'double peak' due to various delays in foreclosure processing last year. The references in the article to pent up demand fail to mention a critical factor: the difficulty in obtaining financing. Mortgage loan brokers and buyers working without loan brokers report that even 'qualified' borrowers are having a very tough time securing financing. Lenders are extremely cautious and the 'pendulum' seems to have swung to the opposite extreme of lending standards that existed prior to 2007. Recent published data has indicated that nearly 40% of Americans cannot even qualify for an auto loan, let alone a home mortgage. Underwriting standards are stricter than ever, offsetting, if not negating low mortgage interest rates. The entire issue of housing demand vs. availability of financing reminds me of supermarket ads that offer remarkably low prices on items they have run out of. What good are historically low mortgage interest rates if only a relatively small percentage of prospective buyers can qualify for a loan? This factor is rarely mentioned, and is greatly underestimated. The government recently announced a plan to sell large numbers of GSE-owned REOs in bulk to investors. This will undoubtedly create further home price declines nationwide, making it even more difficult for non-government lenders to move their own REO inventories. Falling home prices generate more foreclosures, and so-called 'strategic defaults.' With one in four homes with mortgages 'upside down,' and owners unable to refinance, an increasing number of homes are likely to fall into default. As for a decrease in the 'shadow inventory,' it is logical to conclude that the same decrease in foreclosures in 2011 due to processing delays and government moratoria will lead to a marked increase in shadow inventory as lenders resume and increase the rate and number of foreclosure sales. Realty Trac's report does not address these issues, let alone quantify them. 1. Difficulty in obtaining mortgage financing despite very low mortgage loan rates 2. Buyer reluctance as home prices continue to fall 3. The impact of 'bulk sales' by Fannie Mae, Freddie Mac and FHA on home values. The bottom line is that the housing crisis and foreclosure numbers are getting worse, not better, despite published statistics that might indicate otherwise. Posted: January 11, 2012 by: lareoauthorqwerty
The headline is somewhat misleading. While it correctly reports numbers, it doesn't match the story. As stated in the article, the drop in foreclosures is not due to a lack of desire or a lack of opportunity but rather a lack or possible lack of legal standing. Most of the major lenders/servicers slowed or stopped foreclosures until there was a settlement w/ state gov'ts, the Treas, and the various state and federal courts. The telling number is the rate of defaults and the number of mortgage loans actually in default rather than those where a NOD was sent. That's part of the slowdown process - don't start the foreclosure if... Richard Isacoff rii@isacofflaw.com Posted: January 11, 2012 by: riisacoff

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