The housing market has shown some promising signs of late, but a fresh batch of foreclosure data offers a reminder that any recovery from the housing bust will likely be slow, spotty and painful.
RealtyTrac reported Thursday that foreclosure filings rose by 9 percent in May from a month earlier, to 205,990 total properties that were subject to default notices, scheduled auctions or bank repossessions.
The jump in foreclosure activity was likely because lenders are finally getting to a backlog of homes they might have started foreclosing on last year if they weren’t facing criticism for cutting corners and pushing foreclosures through too quickly and without adequate controls, said Daren Blomquist, a vice president with RealtyTrac.
He noted that the major increases came from properties that are just starting the foreclosure process.
Still, the figures for May are down 4 percent from a year ago. In addition, the report noted, recent sales data suggests that not all homes with foreclosure filings will result in the bank taking the property.
“Based on the rise in pre-foreclosure sales we’ve seen so far this year, a higher percentage of these new foreclosure starts will likely end up as short sales or auction sales to third parties rather than bank repossessions going forward,” Brandon Moore, RealtyTrac’s CEO, said in a statement.
That’s important because bank-owned homes tend to sell for less than homes in earlier stages of foreclosure.
RealtyTrac’s data shows that a home that is in pre-foreclosure sells for 21 percent less than a non-distressed home, on average. A bank-owned home sells for 33 percent less on average.
Blomquist cautioned that some of these houses entering the foreclosure process will end up being repossessed by the bank. In addition, the increase in foreclosure activity that is expected as banks work through their backlog could put a damper on housing prices once again, at least in some parts of the country.
“I actually think the stabilization in home prices and home sales is, in part, a result of the foreclosure inventory being artificially restricted over the past year and a half,” he said.
The National Association of Realtors reported last month that existing-home sales rose 3.4 percent from March to April and were up 10 percent from a year earlier.
Median home prices also were up about 10 percent in April from a year earlier. May data is due out next week.
Record-low mortgage rates also could be providing a boost for the housing market. Freddie Mac said last week that the average rate on a 30-year loan dropped to 3.67 percent.
Of course, with real estate it’s always all about location, and the foreclosure report showed that while some pockets of the country have seen some improvement others are still struggling. Georgia posted the highest foreclosure rate for the month, overtaking traditionally foreclosure-plagued states such as Florida, California, Nevada and Arizona.
Blomquist said while some cities seem to have broken the housing-bust cycle and at least stabilized, the data from Georgia illustrates the uneven nature of the market.
“Georgia is still caught in the downward spiral of decreasing home prices, and that in turn is helping to fuel more foreclosures,” he said.