Foreclosures In America - Is the Situation Improving?

CoreLogic recently released its National Foreclosure Report for January 2012.  This report provides data on delinquency rates, completed foreclosures and the foreclosure inventory each month.

In January of this year, CoreLogic reports that 1.4 million homes or 3.3 percent of the nation's inventory of all homes with a mortgage were in the foreclosure inventory (the stock of homes in the foreclosure process) compared to 1.5 million or 3.6 percent one year earlier.  This number is little changed from the previous month, December 2012, when 1.4 million or 3.4 percent of homes were in foreclosure.  Homes are placed into the foreclosure inventory when the mortgage issuer places the home into the foreclosure process after the mortgagee is seriously delinquent.  The property remains in the mortgage inventory until the foreclosure process is completed.  Of the top 100 real estate markets in the United States, 32 are showing an increase in the foreclosure rate in January 2012 when compared to data from a year earlier.

How many homeowners are delinquent on their mortgages?  Nationally, according to CoreLogic, 7.2 percent of borrowers were more than 90 days delinquent, the same level as was seen in December 2011 and down from the level of 7.8 percent experienced one year earlier.  For the 12 months ended January 2012, 860,128 foreclosures were completed.

The one issue that is not improving is the inventory of REO (real estate owned) properties.  These properties are owned by banks, government agencies or other lenders after the foreclosure process is completed and the lender legally repossesses the property.  In January, the inventory of REO assets grew faster than the rate at which these REO properties sold.  This is measured using the distressed clearing ratio which is calculated by dividing the number of REO sales by the number of completed foreclosures.  The higher the ratio (i.e. the closer the number is to 1.0), the faster the pace of REO sales is to the additions of newly completed foreclosures.  In January 2012, the distressed clearing ratio fell to 0.69 from 0.80 in the prior month.  This is not particularly a good sign; it means that the inventory of REO properties is not dropping as quickly as new properties are being added which could put downward pressure on prices in the future.

Let's look at which states have the largest number of foreclosures completed  in January 2012:

1.) California - 155,000

2.) Florida - 86,000

3.) Arizona - 65,000

4.) Michigan - 65,000

5.) Texas - 57,000

These five states account for 49.7 percent of the nation's completed foreclosures in the month.

Now let's look at the states that have the highest overall foreclosure rates for the month of January 2012:

1.) Florida - 11.8 percent

2.) New Jersey - 6.4 percent

3.) Illinois - 5.3 percent

4.) Nevada - 5.0 percent

5.) New York - 4.7 percent

Here are the five states with the highest overall 90 day plus delinquency rate recalling that the national average rate is 7.2 percent:

1.) Florida - 17.4 percent

2.) Nevada - 13.3 percent

3.) New Jersey - 10.7 percent

4.) Illinois - 9.2 percent

5.) Maryland - 8.1 percent

Lastly, here are the five major markets that have the highest 90 day plus delinquency rates noting the percentage point change from a year earlier:

1.) Orlando - Kissimmee - Sanford, FL - 18.2 percent (down 1.4 percentage points)

2.) Tampa - St. Petersburg - Clearwater, FL - 17.1 percent (down 0.1 percent points)

3.) Chicago - Joliet - Napierville, IL - 10.7 percent (up 0.3 percentage points)

4.) Nassau - Suffolk, NY - 10.4 percent (up 0.3 percentage points)

5.) Riverside - San Bernardino - Ontario, CA (down 3.9 percentage points)

From RealtyTrac, here is a map showing the foreclosure rate across the United States with the biggest problem areas in darkest red noting the sun'n'sand and de-industrialized heartland hotspots:

To put all of this data into perspective, let's go to the FRED website and look at a graph showing the delinquency rate on single-family residential mortgages back to 1990:

The vertical grey bars show recessions.  Notice that delinquency rates during the 2001 - 2002 recession barely increased, peaking at 2.41 percent in October of 2001.  Even after the more severe recession in the early 1990s, the delinquency rate only reached 3.42 percent.  This time really IS different.  According to the St. Louis Fed, here's what the delinquency rate looked like since the beginning of 2008:

Notice that the peak delinquency rate of 11.36 percent was reached in the first quarter of 2010.  While this rate has dropped very slightly, it seems to be entrenched above 10 percent and remains very close to the highest rate since 1990.

RealtyTrac projects that foreclosure activity is expected to increase by 15 percent in 2012 compared to 2011.  February's data shows that 21 states reported annual increases in foreclosure activity, a level not seen since November 2011.  While some measures are showing very modest improvements in some parts of the U.S. housing market, it is quite clear that the foreclosure problem is likely to be with us for some time to come.  Until the backlog of foreclosures and delinquencies are cleared up, the housing market will not and cannot recover.