Despite talk of a housing bottom, new data shows that foreclosure filings jumped 9 per cent from April to 205,990 according RealtyTrac’s latest foreclosure report. While the rise in foreclosure activity above the 200,000 mark is worrying, an even more worrisome sign is the rise in foreclosure starts – default notices or scheduled foreclosure auctions.
Foreclosure starts were filed on 109,051 U.S. properties and were up for the first time in 27 straight months on a year-over-year basis (YoY).
Daren Blomquist, vice president at RealtyTrac said in an email interview that the uptick in foreclosure starts is troublesome “because the real estate market has started to stabilise over the past few months, helped in part by decreasing foreclosure activity. This new batch of properties entering the foreclosure process could threaten to destabilize the market once again.”
For now Blomquist says lenders are pushing “smaller waves of distressed loans into foreclosure rather than filling the foreclosure pipeline all at once,” which should prevent a sudden drop in home prices.
Foreclosure starts increased on an annual basis in 33 of 50 states. Some of the biggest increases were seen in the judicial foreclosure states like New Jersey, where foreclosure starts were up 118 per cent YoY, Pennsylvania, 93 per cent. In Tennessee, a non-judicial foreclosure state, foreclosure starts were up a whopping 165 per cent YoY.
Going forward, a higher per cent of these foreclosure starts are likely to end up as short sales or auction sales rather thank bank repossessions according to RealtyTrac CEO Brandon Moore. Pre-foreclosure sales have less of a negative impact on home prices than bank-owned sales but they can benefit the lender since, pre-foreclosure sales sell at a higher average price point than bank-owned homes.
Here’s a chart from RealtyTrac that shows the rise in foreclosure starts: