2006 Led the Way for Increasing, But Slower Residential Real Estate Foreclosures in 2007

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By Kayla O'Brien

RISMEDIA, Feb. 5, 2007-In a press conference hosted by Bear Sterns, guest speaker, Vice President of Marketing for RealtyTrac, Inc. Rick Sharga, recapped 2006's foreclosure trends while offering insight for 2007. In his interactive presentation, Sharga concluded that foreclosures will increase in 2007, but at a slower rate than 2006. Among the reasons include the continuing "softness" in residential real estate sales, slower home appreciation rates, increased interest rates reducing demand, and the wild card, the $1 trillion in ARMs due to reset in 2006.

During 2006, over 1.2 million properties entered some stage of the foreclosure process, a 42% increase from 2005. The three stages of foreclosure include the notice of default, Notice of Trustee Sale (NTS) (or Notice of Foreclosure Sale), or Bank Repossession (REO). That being said, according to RealtyTrac, Inc., one in every 92 households entered one of the three stages of foreclosure last year. This holds the record in foreclosure filings in the past 10 years. Each quarter in 2006 was higher than any quarter in 2005; over 100,000 foreclosure filings in each of the last five months alone.

The market presents several factors in the current foreclosure rates. The primary reasons include slowing home sales, rising mortgage payments and local economic issues. With residential real estate properties on the market longer, they create downward price pressure. The more homes on the market, the more difficult it is for distressed homeowners to move their properties.

ARMs in 2006 re-set at payments 20-50% higher, on average. Stricter underwriting standards for credit, equity, created difficulties for those with "risky" loans to refinance. Exotic loans also worsened basic economic problems.

Local issues, the third factor, are a key driver for foreclosures. There are very few similarities between any two markets, however the same elements are taken into consideration. Unemployment, percentage of loans, perspective buying, and home appreciation/depreciation, all stay localized, when looking at the numbers.

Metropolitan areas pose a challenge for tracking. This is a common issue because the government changes metro breakouts on a year-to-year basis. For example, the Dallas-Fort Worth area was formally considered one market, but this year it is split into two. Different markets provide distinction in what's driving foreclosures. Atlanta is battling mortgage fraud; Denver is experiencing an inventory imbalance, and markets like Las Vegas and Miami are all victims of speculative buying. While the numbers stay consistent, they vary from market to market.

The average sales price is over $189,000; California holding the highest at $421,972, and Ohio with the low $71,240. Comparably, six months ago the average was at a high of $230,000.

During 2006, the average number of days in foreclosure reached 66. The longest time recorded was 112 in New York, with the shortest average in Texas with 5 days.

2007's forecast expects foreclosures to increase, but at a slower pace. The residential real estates sales pace plays an important role. Another factor is slower appreciation rates along with increased rates that will therefore reduce demand, keeping properties on market longer, contributing to price erosion. The $1 trillion in ARMs due to reset in 2007 present a wild card, aiding this increase, since ARMs traditionally default at higher rates than fixed rates.

While the trends for 2007 are nationally-based, certain regions will be hit harder than others. The hardest is perceived to be the Midwest due to local factors such as labor issues which can drive house prices down. Others to keep a watchful eye include former "high flying" regions, those that grew fast in sales, may now have inventory imbalances, making it hard to adjust.

For more information, visit http://www.realtytrac.com.

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Sunday, March 21, 2010