Real Estate & Mortgage Insights

Foreclosure Tidal Wave Has Slowed, But Not Disappeared

The latest figures for U.S. foreclosure rates show a marked decrease for most metropolitan areas around the country, but unfortunately that doesn't signal the beginning of the end of our nation's foreclosure woes.

During the first six months of 2011, foreclosure activity, including default notices, home auctions, and repossessions, decreased in 178 of the 211 largest U.S. metro areas compared with the first half of last year, according to foreclosure data firm RealtyTrac. And of the top 20 most populous metro areas, only one � Seattle - posted an increase in foreclosure filings. Because of increased layoffs in the city, Seattle's foreclosure rate shot up by 10 percent this year.

Overall, foreclosure activity fell in 84 percent of the country's areas with more than 200,000 residents. That seems like it should be welcome news. A glut of distressed properties on the market has sent home prices plummeting for the past five years and has left neighborhoods blighted with unsightly, crime-attracting properties. So any decrease in foreclosure activity is a step in the right direction. Or is it?

In this case, the slowdown is simply a prolonging of the painful foreclosure crisis. After many big banks were discovered to be improperly filing their foreclosures last fall, a widespread investigation has made them slow down and double check their work, resulting in many new foreclosures being put off.

"There may be buried in there some green shoots,� said Daren Blomquist, director of marketing communications for RealtyTrac. �For the most part, we think the decreases are a result of artificial delays in the foreclosure process that are bringing those numbers down."

And RealtyTrac chief executive James J. Saccacio confirmed that idea, noting that foreclosure decreased the most in states where foreclosures are reviewed by law.

"The 20 metro areas with the biggest year-over-year decreases in foreclosure activity were all in states with judicial foreclosure processes � New York, Maryland, Florida, New Jersey, Connecticut, Massachusetts, and Illinois," he said.

"These dramatic decreases indicate the foreclosure pipeline continues to be clogged in many local markets across the country, sometimes by a glut of already-foreclosed properties that are not selling quickly, sometimes by a mountain of improperly-filed foreclosures that are blocking the inflow of new foreclosure filings � and sometimes by both."

That logjam of foreclosures amounts to roughly 1.7 million properties, according to real estate firm CoreLogic, and those won't just go away. While it is rumored that more banks are looking to work out mortgage modifications and short sales, in most cases foreclosure will still be the end result. Delays to working through that inventory may provide a temporary reprieve for some frazzled homeowners, but in the long run, it will simply drag out the bottoming out of the market. Home prices will continue to fall until the majority of the foreclosures have been sold, and the housing market will not begin to truly recover until that happens. Factor in the dismal employment scene, and we may not see a healing in real estate for at least a year or more.