Defaults Falling
Americans looking for some closure on the foreclosure crisis that haunted the housing industry over the past few years can take heart from the latest data: the rates of homes in foreclosure have decreased significantly over the past year.
Based on numbers recently released by Black Knight Financial Services, the national foreclosure rate dropped by 30 percent in 2016, marking the biggest improvement of any year on record and resulting in a decrease of over 200,000 loans in active foreclosure. Backing up that finding is a recent ATTOM Data Solution report, which revealed that U.S. foreclosure activity fell to a 10-year low last year.
Overall, that adds up to positive news for the real estate market and for owners, sellers and buyers, too, say the pros.
“Historical data over the past decade clearly indicate that, as foreclosure rates decrease, neighborhood blight diminishes, pricing competition from lenders and investors liquidating assets diminishes, and property values and market prices trend upward,” says Greg Stephens, chief appraiser for Detroit-based Metro-West Appraisal Company.
Daren Blomquist, senior vice president for ATTOM Data Solutions in Irvine, Calif., says we’re now back to pre-recession levels of foreclosure activity and heading even lower.
“A rising tide lifts all boats, and these lower foreclosure rates are helping push home prices and values higher at a faster pace,” he says.
That’s good, Blomquist adds, because it means homeowners underwater and facing foreclosure are more likely to have an equity escape hatch in which to sell and avoid foreclosure.
“Additionally, it means distressed properties are going to be a hot commodity, since there are so few of them and they’ll attract a lot of attention from bargain hunters,” notes Blomquist.
That benefits homeowners living in areas sullied by abandoned properties and homes in foreclosure, as these distressed residences could be owned again soon.
“As these markets have stabilized and foreclosed property inventories have diminished, the markets have been experiencing upward value trending,” says Stephens. “This has helped reduce or eliminate underwater exposure for many homeowners, encouraged continued owner-occupancy, and decreased the liability exposure for homeowners facing foreclosure.”
Sellers can reap the benefits, too, says John Warren, CEO of Greenville, S.C.-headquartered Lima One Capital.
“Low foreclosure inventory means housing prices climb and sellers are more likely to get their asking price – or even spark a bidding war. Plus, home flippers can make more money off a major construction to their home for sale,” Warren says. “But it does lead to higher costs for buyers.”
Blomquist agrees.
“This will continue to be a challenging market for buyers to compete in, particularly those constrained more by income and low down payments,” says Blomquist. “Prospective buyers should be cautious in this market to not over-buy and be patient for a deal that makes sense for them.”
The silver lining for buyers is that fewer foreclosures results in less risk of a decline in property values, including the worth of the home they end up purchasing.
One or more foreclosed properties on your street may lower the value of your home and increase crime rates in your neighborhood (abandoned/vacant homes can be targets for thieves and vandals).
“Buyers considering investing in neighborhoods no longer blighted by real estate-owned properties will be enjoying price appreciation and a stronger equity position over time,” Stephens says.
Because the direction of the foreclosure rate has a direct impact on home equity appreciation, every real estate player should continue to keep tabs on it.
“For example, in a more depressed market with a high inventory of foreclosure properties,” Stephens says, “a homeowner who has the ability to postpone selling might want to reconsider putting their property on the market and wait until that inventory diminishes and market pricing recovers.”