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Foreclosure hits the lowest point in almost 13 years

October 18, 2018

For years, the lingering effects of the national foreclosure epidemic hung over the housing market and had a dramatic impact on a number of different issues. But at some point more recently, the number of properties in some stage of the foreclosure process dipped to some of the lowest levels ever observed, and the collective impact of those defaulted mortgages was diminished to the point that it was almost non-existent.

"177,100 properties were served with a foreclosure filing."

Low foreclosure activity is now a common trend, and it's one that's likely to continue for some time to come, according to the latest U.S. Foreclosure Market Report from ATTOM Data Solutions. In the third quarter of the year, only a little more than 177,100 properties nationwide were served with some kind of foreclosure filing - whether an initial default notice, a scheduled auction or an outright repossession.

It's worth noting that the number of homes that began the foreclosure process slipped once again in the third quarter, falling 6 percent on a quarterly basis but just 3 percent annually, the report said. It was nonetheless the 13th straight quarter of year-over-year declines.

That inventory represented a 6 percent drop from the second quarter of the year and an 8 percent slide year over year, the report said. Moreover, it's the lowest level of foreclosure activity seen since the final quarter of 2005, well before the housing crisis kicked into high gear. Indeed, the latest filing number was down 36 percent from the pre-recession average from early 2006 to mid-2007. At this point, it's rare for normal housing market conditions to be a big driver of foreclosure activity at all.

"The biggest foreclosure risk in today's housing market comes from natural disaster events such as the twin hurricanes of a year ago," said Daren Blomquist, senior vice president at ATTOM Data Solutions. "Foreclosure starts spiked in the third quarter in many local markets impacted by those hurricanes. Secondarily, we are seeing relatively modest - but more widespread - foreclosure risk associated with FHA loans originated in 2014 and 2015."

Built to last
The reason experts now believe foreclosure activity is likely to remain low is simple mortgage delinquency - homes that are at least 30 days past due on payments, which are often seen as a harbinger of future foreclosure activity - continues to hover at some of the lowest levels ever as well, according to the latest Loan Performance Insights Report from CoreLogic. In all, just 0.5 percent of mortgages with outstanding balances were in foreclosure, down from 0.7 percent the previous July and representing the lowest share for any July since 2006.

Only 4.1 percent of home loans nationwide were in some stage of delinquency through the end of July, down from the 4.7 percent observed in the same month last year, the report said. However, early-stage delinquencies - that is, homes owned by people who fell behind initially - slipped to just 1.9 percent, from the previous 2.1 percent. 

Dr. Frank Nothaft, chief economist for CoreLogic, noted that this is likely due to low levels of unemployment nationwide, which have been ongoing for some time and aren't likely to spike again any time soon. Nothaft also added that natural disasters, such as the hurricanes hitting states the Mid-Atlantic coastal region and Gulf Coast in recent weeks and the volcanic activity in Hawaii, are likely to impact national statistics, but that even those effects could be more muted than they have been in the past.

For now, though, no state saw early-stage delinquency tick up in July, the report said.

Good news for the market?
One of the common issues associated with foreclosures, particularly if there is a rash of them in a given area, is a negative impact on local home prices. But as those properties become more rare, the overall impact they have on the market drops off as well - instead, the impact now appears to be flipped, according to the latest data from Zillow. It appears that the rapid home price appreciation seen for homes that are current on their mortgage payments seems to be bringing up price increases on foreclosed properties at a much faster rate than normal.

"Prices for foreclosed properties jumped 10.3%."

While the average U.S. home price rose 6.5 percent in the last year - more than double the typical annual rate of increase - values for foreclosed properties jumped 10.3 percent, Zillow reported. Over the course of the recovery, foreclosures have seen their values increase 74.5 percent, in comparison with a spike of "just" 46 percent for all properties.

"While the overall market is facing growing headwinds, homes that were foreclosed upon during the bust are picking up steam, speaking to the enduring appeal of affordability," said Zillow senior economist Aaron Terrazas. "For families who lost their homes during the housing bust and were locked out of the market for several years thereafter, this was a critical lost opportunity."

Strong indicators
Finally, another reason why experts don't think there's likely to be much change in national foreclosure rates - and certainly not to the rampant level that precipitated the housing bust in the first place - is the rules are different than they were 13 or 14 years ago, according to CNBC. Not only are lenders still a bit cautious about the types of borrowers to whom they will extend mortgage credit (to the point that some experts argue they have plenty of room to increase lending without an appreciable increase in risk), but also newer regulations insulate the market as a whole from such risk.

Brandon Moss, a mortgage manager in Southern California, told CNBC that perhaps the biggest protection the market as a whole has from another foreclosure surge is that since the crash, all standard mortgage underwriters have been required by law to verify borrower incomes. Further, more is also being done to encourage consumers to make larger down payments that will, in turn, help give them more reason to stay current on their home loans even if the economy slows down once again.

Simply put, the abundance of caution everyone from consumers to lenders to lawmakers now takes when it comes to the mortgage market as a whole should be seen as the most encouraging sign that another foreclosure crisis is quite improbable, and certainly isn't likely to happen at any point in the next few years. With that in mind, it's important for anyone seeking deals on a foreclosed property up for sale to strike while the iron is hot and lock in that kind of bargain while they still can.




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