Foreclosures Increase in 1Q 2010

The latest foreclosure report from RealtyTrac, an Irvine, California firm that reports on distressed properties, delivered mixed news for the housing market.

The overall foreclosure rate in the first quarter of 2010 increased 7 percent from the previous quarter and 16 percent from the first quarter of 2009. According to the report, one out of every 138 mortgaged homes in the United States received a foreclosure notice last quarter.  Most of the foreclosure activity is limited to a few markets, as ten states account for more than 70 percent of foreclosure activity in 2010.

Nevada has the dubious distinction of leading the nation in foreclosures, as it has for each of the last thirteen quarters.  One out of every 28 mortgaged houses in Las Vegas received a notice of foreclosure in the past year.

The positive news is that foreclosures declined in 14 of the top 20 markets surveyed on a year-over-year basis. James Saccacio, chief executive of RealtyTrac commented, “The decreasing foreclosure activity in some of the nation’s top foreclosure hot spots in the first quarter is largely the result of government intervention and other non-market influences, and not a sure signal that those areas are out of the woods yet when it comes to foreclosures”.

The report also noted that there has been a shift in the type of foreclosure activity that is occurring.  There are an increasing number of foreclosures that are in the final stages of the process.  According to Saccacio the “shift in the numbers pushed REOs to the highest quarterly total we’ve ever seen in our report and may be further evidence that lenders are starting to make a dent in the backlog of distressed inventory that has built up over the last year”.

Part of the shift in foreclosure activity may be a result of government and lender efforts to forestall foreclosures.  Loan modification programs have achieved some success, and programs like Home Affordable Foreclosure Alternatives (HAFA) are designed to incentivize short sales instead of foreclosures.  Lenders lose twice as much money on foreclosures than on short sales.

Foreclosures pose the largest threat to the housing market recovery and the economy as a whole.  There exists a potentially huge shadow inventory of distressed homes that could seriously dampen housing prices if they were to hit the market en masse.

Do the new foreclosure numbers make you feel better about the future of the housing market?  Comment below.