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Foreclosures are down, but some places may see a surge

A sign hangs in the window of a foreclosed house on October 29, 2012 in Warren, Ohio.

Foreclosures are way down from the worst of the housing crisis. But as we start this new year, don’t be surprised if some places see a rise in foreclosure sales. That’s because foreclosures that have been slowly working their way through judicial pipelines are now coming to market. That may prove a rude awakening in some areas.

In almost half of states, foreclosures have to go through court. The idea is to do everything possible to protect homeowners, but these judicial foreclosures can take a long time, sometimes take years.

Tom O’Grady is CEO of Pro Teck Valuation Services, which analyzes housing data. He says foreclosure is quicker in non-judicial states.

“It’s kindof like ripping the bandaid off, instead of pulling off slowly,” O’Grady says.

He’s found that non-judicial states have bounced back from the low point of their housing crises faster than judicial states.

Non-judicial states worked through their foreclosure pain – and inventories -- up front, says Dave Stevens. He’s head of the Mortgage Bankers Association.

“The home values were depressed much quicker, much faster, but now they’re in significant recovery,” says Stevens, who points to the double digit appreciation in places like Phoenix, Arizona.

“That’s gonna be very different in states like New York, New Jersey, and Florida where they have now the backlogs that are just hitting the market,” he says.

Foreclosures tend to sell for about 30% less than non-distressed sales, Stevens says. When there are lots of foreclosures in the market, they pull down the value of the homes around them. That means some communities won’t get to share in the housing recovery just yet.

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