Why the Drop in Foreclosures is Not Good News
Life + Money

Why the Drop in Foreclosures is Not Good News


It sounds like good news: Foreclosure filings declined by 29 percent in the first half of 2011, according to a report by RealtyTrac. But U.S. homeowners just can’t catch a break. The decline isn’t due to a recovering real-estate market, but rather to the fact that shoddy foreclosure practices last fall have led to long processing delays.

As many as 1 million forecloses that should have taken place in 2011 will be pushed back to 2012, or perhaps even later, according to the experts at RealtyTrac. “This casts an ominous shadow over the housing market, where recovery is unlikely to happen until …  the inventory of distressed properties can be whittled down to a manageable number,” said James Saccacio, chief executive officer of RealtyTrac.

Foreclosure filings during the second quarter decreased 32 percent from the second quarter of 2010. In June, fillings dropped 29 percent from 2010, marking the ninth straight month where foreclosure activity decreased on a year-over-year basis.

In the months ahead, experts say foreclosures may tick up slightly as loan servicers work through the big backlog of filings. Sales of foreclosed and bank-owned properties are largely responsible for the downward pressure on home prices, which experts say will keep falling through 2011. Prices won’t  bottom out until the first quarter of 2012, says Celia Chen, an economist with Moody’s Analytics. She estimates the market still needs to work through 1.9 million distressed properties.

“We are still searching for the bottom in housing,” says Anika Kahn, an economist at Wells Fargo. “We’re in the middle of home buying season and for it to be limping along is definitely not the most encouraging progress.”

Some experts say they don’t expert a real turnaround in housing until there is a significant increase in job creation and income. June’s jobs report showed a paltry gain of 18,000 jobs, while the unemployment rate inched up to 9.2 percent.

The decline in foreclosures comes as the Obama administration is ramping up efforts to resuscitate the battered housing market. In a Twitter town hall event last week, president Obama said housing remained the “most stubborn” problem facing the country. There hasn’t been a clear list of policy ideas, but the administration has floated a proposal to require taxpayer-owned mortgage giants Fannie Mae and Freddie Mac to relax their rules for loans to investors, among other measures.

Read more on the Housing Crisis from The Fiscal Times
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Foreigners Cash in on U.S. Housing Market Fire Sale
Housing Freefall Ends as Prices Slowly Rise