More Foreclosures Still In the Pipeline
According to some estimates, about 5 million to 7 million properties are potentially eligible for foreclosure but have not yet been repossessed and put up for sale. Some experts argue it could take up to three years for all these homes to go through the foreclosure process, hit the market and be purchased by new owners. This new bubble of foreclosed properties will increase the inventory of properties on the market (which is already too high), pushing down prices and lengthening time on market for homes to sell. This will reverse the trend we have seen in the last 90 days, of falling REO inventory and increasing prices (at least in REO properties).
One example is that JP Morgan Chase hit its top month of foreclosures in the middle of 2008 and their numbers have been steadily falling. Unfortunately, the bank is estimating that it could again beat that previous record by the fourth quarter of 2010. Data released by RealtyTrac shows that banks are now slower to take properties back through foreclosure despite the fact that more and more homeowner are falling behind in their payments. This new wave of foreclosures are less the result of ARM mortgages adjusting and over leveraged properties. They are the result of job losses or changes in income.
Maybe a wave 3? I hope not, but there is an estimated 11 million US homeowners that now owe more on their mortgage than their home is worth. Many of them will decide that keeping that home is not worth it and will become delinquent. Hopefully some of these will opt to sell their home via a short sale instead of letting it go into foreclosure. By the end of 2012, 39 percent to 50 percent of home purchases in Phoenix will still be foreclosed properties, J.P. Morgan Chase has estimated. Wow!
According to the National Association of Realtors, the inventory of bank owned or bank mediated (short sales) properties declined from 49 percent of the inventory of homes sold in March 2009 to 38 percent of the inventory in January 2010. Additionally, the inventory is down to just a 7.8 month supply from a high of 11 months in July 2008. A stable market is around 4 months; we still have some time to go.
Wow. Thank you for a really insightful post. I’ll add your RSS feed to my Google Reader account now. Looking forward to more of the same in 2010!