Thursday, June 10, 2010

More evidence the Foreclosure Wave is Cresting

- by New Deal democrat

Two months ago I had a brief debate with another blogger who viewed the March increase in foreclosures over February as the beginning of a new "tsunami." The genesis of this "second wave" story goes back to stories that started making the rounds in late 2006 noting that mortgage recasts and resets were due to hit in two waves: the first in 2007-08, and the second this year and 2011.

I have always been a little chary of that notion, because, while in 2006 lots of people were still deluding themselves that "real estate only goes up!" by 2008 and certainly 2009, they had been disabused of that notion. Thus, a lot of those homeowners, who were probably deeply underwater, already let their houses go into foreclosure, or else worked out a refinancing before now. Thus in my exchange with the other blogger, I countered that the data actually was more consistent with the crest of the foreclosure wave than the beginning of a new one, but that it could also be consistent with there being a lull during the "eye of the hurricane," and that,
if there is a new wave, or a "back side of the hurricane", then the percentages and the raw numbers of foreclosures ought to start increasing quickly. If, on the other hand, the 2nd derivative continues to be negative, then we ought to see foreclosures tip over into YoY negative percentages in the next few months, or certainly by the end of the year.
Sure enough, in April, foreclosures decreased 9% from March and 2% from April 2009.

This morning Realty Trac" released their May report:
There were 322,920 properties that received a foreclosure filing in May, down 3% from 333,837 in April. But it remains 1% above levels seen in May 2009....

James Saccacio, CEO of RealtyTrac, added lenders are not making as many new filings and are instead focusing on the backlog of distressed properties built up over the past 20 months, a continued trend from April....

“Lenders appear to be ramping up the pace of completing those forestalled foreclosures even while the inflow of delinquencies into the foreclosure process has slowed,” Saccacio said
Here is the updated chart of year over year changes in foreclsoure activity for the last 14 months:

MonthYoY % changeactual foreclosures
04/2009+32 342,038
05/2009+18 321,480
06/2009+33 336,173
07/2009+32 360,149
08/2009+18 358,471
09/2009+29 343,638
11/2009+22 306,627
12/2009+15 349,519
01/2010+15 315,716
02/2010+6 308,524
03/2010+8 367,056
04/2010-2 333,837

So far, this certainly looks more like the cresting of a wave than the beginning of a new one, but I'd still like to see another month or two of data to be sure that the spring 2010 resets haven't impacted the YoY numbers, due to their lagging nature.

It's also possible that a second hump in foreclosures, probably a small echo of the first, could occur not because of resets but because of further price declines, now that the $8000 home buyers' credit has ended. If so, I would expect that to show up later this year or early next year for reasons that go beyond the scope of this post. (Way back in 2006 I was able to call the turn in the housing market in real time, due to a web site that posted really good and timely weekly data on about 40 housing markets. That same web site still exists and appears to be giving clues as to when housing prices might bottom. But that is another, long, post).