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Thursday, December 15, 2011

Foreclosures down 14% in November - don't be fooled!

Although foreclosures overall in the U.S. were down 14% in November, versus November of 2010, we actually saw increases in many of the markets that have the largest issues, especially in California, Las Vegas, Arizona overall, etc.  In fact, Vegas has been number 1 for 59 months straight - that's almost 5 years!  And, 9 of the 10 worst cities for foreclosures are in California, with the only city in the top 10 that is outside of California being Vegas.  Foreclosures in California were actually up 11% in November, and we also saw Utah and Massachusetts post increases for November.

A big issue with these data is that banks have been constrained by a combination of political interference, logistical challenges, including paperwork problems, bottlenecks, staffing, etc., and negative public sentiment.  These issues have in large part been resolved, or the banks just don't care anymore, and they are now aggressively pushing forward with foreclosures.  Now that the infrastructure and logistical support is in place, and banks are committed to the foreclosure process, we should see a marked and sustained increase in foreclosures moving forward.  There are approximately 4 million properties already at some stage of default/foreclosure, so the impact on inventories will be significant, sustained and very negative.

Dramatically higher inventories means lower prices and even more difficulty getting properties sold.  Every market is unique, but in general, prices will continue to fall, especially in those markets that experienced the highest percentage and dollar increases during the boom, and we will not see a bottom form until the foreclosure inventories are moved through the process and inventories overall are stabilized.  Only at that point can we start to bottom and then have a chance for any kind of rebound in real estate.

The rebound process will be slow.  Anyone sitting on a property thinking that prices are going to rebound significantly will be waiting a very, very long time.

My biggest concern with the foreclosure issue is that there are many people out there that cannot afford their homes.  Those people will lose their home, period.  It is just a question of timing.  However, there are many others out there - literally millions of homeowners - who can afford their mortgage payment, but who are upside down (they owe more than the property is worth).  At some point, once they come to terms with the fact that they are, in all likelihood, never going to get back to even, or anywhere close to it, many of them will simply walk away from the property.  This means that we will see even more houses coming onto the market, swelling inventories even further over the coming few years.

When we consider the 4 million properties already in the default/foreclosure process, and add to that several million more that will very likely come onto the market from those who are able to afford their payment, but are upside down, it is easy to understand why real estate prices will not rebound for many, many years.

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