Foreclosure activity in 2012 was a Jekyll and Hyde affair, with the numbers up in 25 states compared to 2011 but down in the other 25 states.
Similar patterns show up at the metro level, with 92 out of the 212 metropolitan statistical areas tracked in the report (43 percent) documenting a drop in foreclosure activity compared to 2011, while the remaining 120 metro areas (57 percent) documented an increase in foreclosure activity.
Among the nation’s 20 largest metro areas, 12 posted decreasing foreclosure activity compared to 2011 and eight posted increasing foreclosure activity.
As was pointed out in the RealtyTrac year-end foreclosure report that provided these numbers, there is a strong correlation between the direction foreclosure activity headed in 2012 and the type of foreclosure process used. Among the 25 states with an increase in foreclosure activity, 20 of them used the lengthier judicial foreclosure process that has been more susceptible to delays over the past two years, while 19 of the 25 states with decreasing foreclosures primarily utilize the more streamlined non-judicial foreclosure process.
There is another correlation to be found as well, this one between the direction of foreclosure activity in 2012 and the strength — or lack thereof — in home price appreciation during the year. This correlation is most clearly seen in looking at the 20 largest metro areas.
Lower Foreclosures Begets Higher Home Prices
The metros with the strongest home price appreciation tended to be those with the biggest decreases in foreclosure activity — although there were a few exceptions.
The most prominent examples of this are Detroit and Phoenix, where the average monthly median home price for 2012 through October increased 22 percent and 17 percent respectively from the same time period in 2011. Both cities had among the three biggest drops in foreclosure activity among the 20 largest metros, down 37 percent in Phoenix and down 26 percent in Detroit.
The other city with one of the three biggest decreases in foreclosure activity — San Francisco — not surprisingly had the third biggest increase in median home prices, which were up 9 percent from 2011 to 2012.
Not surprisingly, all three of these cities with the biggest price increases and the biggest foreclosure decreases are in states where the non-judicial foreclosure process is primarily used.
Higher Foreclosures Begets Lower Home Prices
The pattern is not so clear at the other end of the spectrum, but it still is evident that most of the 20 largest cities with the weakest home price appreciation — or depreciation in some cases — are those where foreclosure activity increased in 2012.
Median home prices decreased 6 percent in St. Louis, correlating to a 12 percent increase in foreclosure activity, and home prices were down 1 percent in the greater New York metro, correlating to a 28 percent increase in foreclosure activity. In Philadelphia home prices were flat while foreclosure activity increased 27 percent year over year.
Certainly there were some exceptions: Miami home prices increased 6 percent even while foreclosure activity also increased 36 percent for the year. And on the other side, Atlanta home prices decreased 6 percent even while foreclosure activity was down 5 percent for the year.
There are likely other, local factors driving those cities to be the exception to the rule, but at the risk of make broad, sweeping generalizations, RealtyTrac’s year-end data gives strong evidence that the type and length of foreclosure process used ultimately has a strong impact on how quickly home prices are able to truly bottom out and start recovering in earnest.