According to a story by Stephanie Armour in USA Today on April 29, the most severe real estate recession in decades is far from over ? the pace of foreclosures is rising, the fall of home prices is accelerating, and the pain is spreading to almost every major city.
The Standard & Poor’s/Case Shiller home composite index of 20 cities fell by 12.7 percent in February compared with last year. This was the largest decline since the index was created in 2001. Nearly every major U.S. city was affected; all but one of the 20 cities ? Charlotte ? saw price declines. In fact, seventeen of those 20 metropolitan areas reported record annual declines. David Blitzer, the chair of the index committee at S&P, said. “There is no sign of a bottom in the numbers.”
As reported on CNBC.com, foreclosure activity is up 23 percent quarter-to-quarter and 112 percent year-over-year. Foreclosure activity refers to default notices, auctions sale notices, and bank repossessions.
Of particular concern is that the number of bank-owned properties is increasing at an unprecedented rate. Rick Sharga of the California-based RealtyTrac says, “Typically you’ll see about 20 percent of the foreclosure filings being bank-owned. We’re getting to a point now where it’s well over 1/3 and aiming at 40 percent, so that suggests that a lot of these homes can’t even be sold to investors at auctions ? because there’s just no equity in the properties.”
Sharga estimates that there will be over a million bank-owned homes in the market by year-end. There are about four million properties listed on the Multiple Listing Service (MLS) so about 25 % of the inventory would be bank-owned. While lenders claim that programs have been set up to help borrowers in default and that refinancings or work-outs are available, the growing number of homes going back to the banks raises questions of the effectiveness of such programs and workouts.
A RealtyTrac report noted that Nevada has the worst foreclosure rate, followed by California and Arizona. One in 54 Nevada households received a foreclosure notice in the first quarter, which is 3.6 times the national average.
Analysts expect an increase in foreclosures in the coming months that will further depress prices. In order to move home inventory off their balance sheets, banks are cutting prices, which forces home sellers who owe on their homes more than their homes are worth to drop prices further.
“There’s no sense of stabilization. The foreclosures are causing a vicious cycle, and the job market is weakening. This doesn’t feel therapeutic anymore. This is undermining the economy,” says Mark Zandi, chief economist at Moody’s Economy.com.
Experts advise that the real estate market can recover when foreclosure filings fade. Until then, the arrival of a “bottom” is welcomed. The sooner prices hit bottom, the sooner home sales can be revived by buyers, said Joel Naroff of Naroff Economic Advisors. “We’re beginning to get massive price declines, and we need that to clear this market.”