File this under confirming what we already suspected: today we get a report from Lender Processing Services via REO-Insider’s Kerry Curry that says the foreclosure problem we face in this country will likely persist until late 2013.
A choice quote from the article from Kyle Lundstedt, managing director of LPS:
“If current trends persist, it will take about 12 months before foreclosure proceedings are initiated”, once borrowers become delinquent, he said. “It takes a heck of a long time to get into foreclosure at this point. When you are in foreclosure, it doesn’t get much better. Today, if you entered foreclosure, it would be 16 months before you got out. How many people think that is a good thing? It’s tragic”.
Now, I’m not sure that the tragedy here is the slowness of foreclosure proceedings so much as the damage that foreclosures are doing to the finances of many Americans directly or indirectly, but the point stands that foreclosures are moving very slowly. Part of this is due to the gigantic backlog of foreclosures. Part of it is also due to the fact that banks probably don’t want to flood the market with REO homes, thereby putting additional downward pressure on pricing and devaluing their own assets (foreclosed homes). Some of the foot-dragging is likely intentional.
Again, none of this is particularly surprising. The excellent folks at Calculated Risk have been beating the drum about the housing supply for quite a while now. We could soon be looking at a 12 month supply of homes on the market, and household formation is substantially down due to the economy and high unemployment. Add in the fact that the country over-built during the bubble years and the high number of people who have sub-par credit due to the economy, and you can see that this excess supply is unlikely to be cleared off the market any time soon (although if the rumors about the GSEs converting a lot of this stock to rental properties are true, some of the stock can be cleared sooner rather than later).
Long story short: foreclosures, REO, and distressed properties are going to be a fact of life for at least a few years, and we shouldn’t expect a rebound in housing prices in the near term.
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