Foreclosure this fall: the Good, the Bad, and Everything in between

With Thanksgiving and Black Friday in the rear view mirror, we thought it would be a good time to look ahead at an important aspect of current American real estate: foreclosures. When it comes to foreclosed homes, are we coming out of the woods, or are we headed deeper in?

The Good News

As of mid-November, 2011, homeowners themselves have made positive progress with foreclosures. The rate of people who are behind in their payments fell to under 8% of total mortgages held in this country. Specifically, the number of owners only 30 days late in their payments improved to 3.19%, which is, according to CNN Money, “the lowest level since the second quarter of 2007.” Similarly, owners two to three months late on mortgage payments also declined.

The Bad News

Ironically, at the same time as owners seem to be slowing down their defaults, the number of bank foreclosures has risen. The Mortgage Bankers Association reports an increase in bank filings that pushed the percentage of outstanding home loans in foreclosure from 0.96% in the second quarter to 1.08% in the third quarter.

So why are lenders filling more foreclosures? There could be several reasons, but RealtyTrac hypothesizes that the country is “coming out of the rain delay we’ve been in for the past year as lenders corrected foreclosure paperwork and processing problems.” As big lending banks like Bank of America and Wells Fargo work out the bugs in their filing process and find ways to streamline that process—making working through the high numbers of delinquent loans easier–the moratoriums that have allowed distressed homeowners to stay in their homes without making payments are ending.

Can Bad News Also Be Good News?

Still more ironic, these increased filings may be the result of signs of economic recovery we’ve all been hoping for. If banks are responding to what the NAR recently predicted, that “We anticipate recovery next year through 2013 and 2014” in real estate, then this optimism could produce motivation to foreclose on delinquent owners.

Other bad news is, of course, the stock market, which plunged sickeningly again last week. But when stocks scare investors, property may begin to look like a better investment: places hard hit by foreclosures and slumping prices can seem like good places to buy in anticipation of economic recovery, even if that recovery is slow. A place like Las Vegas, the nation’s hardest hit city for almost two years straight, offers example.

In the Las Vegas area, increased foreclosures and severely decreased prices means that market rate transactions have dropped significantly. In these conditions, if people don’t have to sell, they won’t. This results in low inventory of both new and existing listings. In the meantime, Vegas is growing: CNN reports the metro added “200,000 new residents since the bust first hit in mid-2006, an 11% jump or more than twice the national growth rate.”

(Check out available homes and prices in the Las Vegas metro here.)

So with increased demand and decreased supply, the balance of power in the Vegas real estate market could be poised to shift—slowly, certainly; but the shift eventually should, if economic theory of supply and demand holds true, be upward.

Opportunity Knocking?

The Las Vegas metro is not the only location in the US experiencing this “flood of foreclosed property,” which has, with help from lenders and buyers, the potential to fix itself. Investors may start eyeing these areas for the profit-making opportunities. Meanwhile, buyers in general may find themselves attracted to the low prices most foreclosed listings offer.

We’ll be back Wed to showcase actual stories of foreclosure-buying transactions to give more local market insight on distressed properties with the help of ZipRealty agents.