South Orange County Blog from Bob Phillips

Why the predicted “Wave of Foreclosures” may just be a ripple

Posted in Foreclosures, Real estate, short sales by southorangecounty on May 6, 2010

There is an interesting phenomenon going on, even while doom & gloom bloggers predict gigantic Tsunami’s of foreclosures heading our way. The following is excerpted from an article out of Texas this week.

“Every week, new home sellers are hitting the market, basing their initial asking prices on recent contracts, sales, and other active listings, and influencing active market prices.  And what does this have to do with foreclosures?  It provides a glimpse into housing market psychology.

Homeowner Henry down in Texas is underwater in his mortgage, or at a minimum, feels some personal economic strain.  He’s trying to determine if he’s in a walk-away situation or not, with his decision metrics at least partially based on his local housing market conditions.  As Henry starts to see active houses sell quickly, get multiple bids, and fetch a decent price, he starts to think – “Hey – maybe the market’s not so bad.  Things are starting to sell at a good price.  I’m going to hang on for another couple of months.  I don’t really want to move anyway, and if the market is improving, I can start to gain back some of that on-paper loss.”  Aggregating this behavior and market psychology yields fewer delinquencies and foreclosures in the short run.

Looking at delinquencies rates and housing market conditions in 2009, the peak in delinquencies were exactly correlated to the trough in home prices.  As the 2009 housing market strengthened and prices accelerated through the Spring, delinquencies fell simultaneously.

And speaking of Texas, Steve Brown of the Dallas Morning News published “Dallas-Fort Worth home foreclosure filings drop 12%” today in which he writes:  Home foreclosures have turned lower for next month’s forced sales.  The 4,861 Dallas-Fort Worth homes scheduled for foreclosure in May represent a 12 percent decline from year-earlier totals. And foreclosure filings are down 21 percent from the recent peak in March, Addison-based Foreclosure Listing Service said Thursday.  His article also provides some local data points of foreclosure rates by county in the Dallas Metro area. 

Home foreclosures have turned lower for next month’s forced sales. The 4,861 Dallas-Fort Worth homes scheduled for foreclosure in May represent a 12 percent decline from year-earlier totals.  And foreclosure filings are down 21 percent from the recent peak in March, Addison-based Foreclosure Listing Service said Thursday. 

Let’s take a look at active housing prices for these counties.  The two markets with the largest decline in foreclosure filings (a good thing) – Dallas and Tarrant County – have housing markets with median ask prices that hit an trough point in March (when foreclosure filings were higher) and are seeing an clear increase each week in the Prices of New Listings.” ( End of excerpt.)

This is a big reason why you shouldn’t be paying as much attention to dire warnings from doom & gloom bloggers, about huge waves of new foreclosures on the horizon.  As distressed homeowners – especially in the lowest price ranges – see their local markets improving, they are far more likely to hang in there, instead of giving up and going through a credit destroying foreclosure.

And because in some areas – such as my Orange County – the lower price ranges have actually increased in value by over 10% in the past 14 months, many who were considering a short sale can now actually have an equity sale, which has even stronger demand ( read higher prices.) from today’s throngs of willing buyers.  If you are a homeowner who thinks that you’re underwater, you just might have another think coming.

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