Bloomberg tells us that foreclosure notices increased more than 100% in August from the year prior level, rising from 1 108,716 to 42,144.
These figures greatly exceed the number of homes sold at foreclosure auction. RealtyTrac, the source of the data, counts every court filing in the foreclosure process as a “foreclosure,” which results both in multiple counting (states require several notices in the process and some properties have more than one mortgage on them) and inclusion of houses that are not foreclosed upon (homes in which the loans are modified or the owners ultimately sell the house themselves are nevertheless included). An indicative data point: one source estimated that more than half the foreclosure sales scheduled in Los Angeles for the first quarter 2007 were cancelled or delayed
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Nevertheless, the RealtyTrac data has been collected on the same basis and the trend certainly isn’t pretty. From Bloomberg:
“This is just the beginning of a wave of new foreclosures,” Rick Sharga, executive vice president of marketing for RealtyTrac in Irvine, California, said in an interview. “There are lots of people who bought homes they could only afford at the teaser rates, and now have very few options.”….
U.S. banks reported owning residential property valued at $4.24 billion in the second quarter, typically houses and condominiums seized in foreclosures, according to the Federal Deposit Insurance Corp. That’s up from $2.29 billion a year earlier.
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Before a bank sells a foreclosed property can they keep (for their books) the inflated appraisal value of the home rather than the market value? If the damage from the sale is greater to the banks financial condition than carrying costs on abandoned property it seems that there would be an incentive for banks to hoard weed covered and cobweb filled properties.
Somewhat OT: Any idea what foreclosure activity looks like in the UK? Any thoughts on the massive scope of the current UK bailout (specifically: “Chancellor of the Exchequer Alistair Darling said late yesterday the government will guarantee all accounts. The pledge will be extended to any solvent bank in similar circumstances, a Treasury spokesman said.” – Bloomberg)? If BoE is going to prop them all up, they’ll all be solvent, and if the Treasury is going to guarantee all bank accounts of any size, then the UK has developed what seems to me to be a fairly radical financial condition. Is there any precedent for intervention of this magnitude?
JS
So if this is the “wrong” numbers, then what are the accurate numbers?
In the end, I think the underlying point is that there’s a lot of turnover and displacement in the market that hasn’t been there before in recent memory.
That in itself isn’t good.
And way too much supply which means inventories are growing which hasn’t happened in recent memory.
Also, that isn’t good.
Like I said before, I doubt the US has the “will” or the “smarts” to figure this one out. The “will” is due to the political nature, which could mean there’s a Katrina solution on the horizon.
-A-
Anonymous of 12:11 PM,
The reason that there are no “right” numbers is that banks and more importantly these days, mortgage servicers, aren’t required to report the number of foreclosures to regulators, hence there is no consistent definition of what constitutes a foreclosure. Some private sector groups have stepped in to fill the gap, but some use methods, like those of RealtyTrac, that clearly lead to overly large results, while others use methods which are generally considered to result in undercounting.
Effectively, this means reported “foreclosures” vary considerably by source. But for a particular data provider, the trend should be a reasonable indicator. See here for more details.