Foreclosures Dwindle as Economy Strengthens.
Foreclosures continued to fall to pre-recession levels in June as the economy continued to strengthen, but signs have emerged that the market might be in danger of overheating, according to a RealtyTrac report released Thursday.
There were a total of 94,469 U.S. properties with a foreclosure filing in June, down 6% from the previous month and down 19% from a year ago to the lowest level since July 2006 -- a nearly 10-year low.
Daren Blomquist, SVP at RealtyTrac, said analysts need to shift from worrying about whether the market has recovered from the recession to worrying about the speculation and house flipping that contributed to the bubble from 2005 to 2007.
Sales deed data collected by RealtyTrac showed 27% of all properties sold at foreclosure auctions from January through June were purchased by third-party investors, the highest share for the first six months of any year since 2000 -- the earliest national data available.
The investor share of purchases at foreclosure auctions reached 20% or higher in only two previous years: 2005 (20%) and 2015 (22%). The investor share of purchases at foreclosure auctions dropped to a 17-year low of 11% in 2008 when the economy crashed.
"It is one red flag that we're back in a full-blown boom market that is becoming more speculative," Blomquist said. "It's a very hot market right now, and getting close to overheating."
Nationwide, 0.40% of all housing units (one in 249) had a foreclosure filing in the first six months of 2016, but some markets remained troubled. Foreclosure rates were more than twice the national average in New Jersey (0.98%) and Maryland (0.90%).
A separate report released Tuesday by the Irvine, Calif.-based CoreLogic showed the percentage of distressed mortgages fell to its lowest level since October 2007, when the housing bubble was bursting.
"The downward foreclosure trend continued in the first half of 2016 in most markets nationwide," Blomquist said. "While U.S. foreclosure activity is still above its pre-recession levels, many of the states hit hardest by the housing crisis have now dropped below pre-recession foreclosure activity levels."
New Jersey, Maryland and other states with higher-than-average foreclosure rates tend to have regulations that lengthen foreclosure timelines to the extent that many foreclosures were mortgages that went into distress in the last housing bust, he said.
In January, Kaufman & Canoles, which represents lenders in foreclosures, predicted foreclosure rates would continue to fall this year.
Dan Basnight, a lawyer with Kaufman & Canoles, said the pool of foreclosures is shrinking because the economy is improving and lenders are more willing to accept loan modifications.
"We also see mortgage lenders working very hard to keep owners in their homes," Basnight said.
RealtyTrac found 227,473 foreclosure auctions were scheduled in the first half of 2016, down 23% from a year ago.
As of May 2016, CoreLogic found the national foreclosure inventory included approximately 390,000, or 1%, of all homes with a mortgage compared with 517,000 homes, or 1.3%, in May 2015. CoreLogic's percentages are higher than those in the RealtyTrac report because it compared distressed mortgages to homes with mortgages. RealtyTrac's base is the much larger base of all housing units. But both reports pointed in the same direction.
"Delinquency and foreclosure rates continue to drop as we experience the benefits of a combination of tight underwriting, job and income growth and a steady rise in home prices. We expect these factors to remain in place for the remainder of this year and for delinquency and foreclosure rates to decline even further," CoreLogic President/CEO Anand Nallathambi said. "As we finally move past the housing crisis, we need to increase our focus on expanding the supply of affordable housing and access to credit for first-time homebuyers in sustainable ways to ensure the long-term health of the U.S. housing market."
The share of mortgages held by credit unions has risen from 2% before the recession to about 9% last year, according to Bob Dorsa, president of the American Credit Union Mortgage Association.
Credit unions have gained share because of a larger base of members and more robust technology that allow smaller lenders to provide the sophisticated level of services that mortgage lending requires, Dorsa said. Another factor has been greater consumer trust, which he said banks squandered in the years the housing bubble grew with subprime loans and lax requirements.
"It was unregulated lending that got out of hand -- greed," Dorsa noted.