Bank Repos Could Top One Million, Putting More Pressure on Home Prices

Published July 23, 2010

The number of bank repossessions of homes this year could top one million despite tens of billions of federal dollars that have been spent to keep people from losing their homes. That’s the report from RealtyTrac Inc., which publishes the nation’s largest database of foreclosure, auction, and bank-owned homes.

RealtyTrac’s Midyear 2010 U.S. Foreclosure Market Report, issued in July, shows 1,961,894 foreclosure filings — default notices, auction sale notices and bank repossessions — were reported on 1,654,634 U.S. properties in the first six months of 2010. This is down 5 percent from the previous six months but an 8 percent increase in total properties from the first six months of 2009.

One in 78 housing units in the U.S. received at least one foreclosure filing in the first half of the year, according to RealtyTrac. Of the 1.2 million homeowners who have gone into the Obama administration’s $75 billion mortgage assistance program, approximately one-third have dropped out.

Three Million Foreclosures
“The midyear numbers put us on pace to exceed three million properties with foreclosure filings by the end of the year, and more than one million bank repossessions,” said RealtyTrac chief executive James J. Saccacio. “The roller coaster pattern of foreclosure activity over the past 12 months demonstrates that while the foreclosure problem is being managed on the surface, a massive number of distressed properties and underwater loans continue to sit just below the surface, threatening the fragile stability of the housing market.”

Areas where housing prices shot up highest during the real estate boom are being hit hardest in the bust. Nevada, Arizona and Florida have the highest foreclosure rates (percent of homes in foreclosure), and California, Florida and Arizona have the highest numbers of foreclosures.

Multiple Problems
Jack Plunkett, chief executive of Plunkett Research, Ltd., a Houston-based firm that analyses real estate and other markets, said there are several reasons houses continue to sink into foreclosure.

Those reasons include “low property values, which may be represented by ‘underwater’ mortgages; high unemployment; resets on adjustable interest rates that were written at unrealistically low ‘teaser’ rates initially; low confidence that housing markets will improve in the short term; and debtors’ ability to walk away from loans without significant consequences.”

Though unemployment is a big factor, it’s not the main one, according to Plunkett.

“I’d say low property values are the key ‘root’ of the problem,” he said. “A debtor with no job but a valuable equity would do everything possible to keep the property, such as lease it out.”

Long Wait
Plunkett does not expect the situation to improve in the near future.

“I would say that significant improvement is still pretty far down the road,” he said. “Until consumer confidence improves and employment reaches reasonable levels, excess inventory will continue to overhang the market and hurt property values. This remains true in spite of the extraordinarily low interest rates that are currently available on mortgages.”

Steve Stanek ([email protected]) is a research fellow at The Heartland Institute and managing editor of Finance, Insurance & Real Estate News.