Foreclosure Filings: 2009 Not Pretty, 2010 Expected to Be Worse

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The numbers are in for 2009, reported by RealtyTrac.

The total number of foreclosure filings in 2009 was 3,957,643 , involving 2,824,674 properties. There are three classifications of foreclosure filings: default notices, scheduled foreclosure auctions and bank repossessions (called repos). After the third phase action (repo) is completed, the properties are known as REO (Real Estate Owned) properties until the bank can resell them.

Some of the 2,824,674 properties experienced more than one type of foreclosure filing. Some that received a second stage (auction notice) or a third stage (repo) action may have received one or both previous stages in 2008, so making the numbers add up is not straight forward.

From the RealtyTrac report:

“As bad as the 2009 numbers are, they probably would have been worse if not for legislative and industry-related delays in processing delinquent loans,” said James J. Saccacio, chief executive officer of RealtyTrac. “After peaking in July with over 361,000 homes receiving a foreclosure notice, we saw four straight monthly decreases driven primarily by short-term factors: trial loan modifications, state legislation extending the foreclosure process and an overwhelming volume of inventory clogging the foreclosure pipeline.

“Despite all the delays, foreclosure activity still hit a record high for our report in 2009, capped off by a substantial increase in December,” Saccacio continued. “In the long term a massive supply of delinquent loans continues to loom over the housing market, and many of those delinquencies will end up in the foreclosure process in 2010 and beyond as lenders gradually work their way through the backlog.”

Four states (Arizona, California, Florida and Illinois) accounted for half of the national foreclosure actions. Arizona (more than 6% of housing units) and Florida (just under 6%) were joined by Nevada (more than 10%) to make up the top three states in foreclosure action rates. Other states with high foreclosure rates include Utah, Idaho, Georgia, Michigan, and Colorado. Nationally, the foreclosure rate was 2.21% of housing units in 2009.

The four states with the lowest foreclosure rates are North Dakota (0.13% of housing units), West Virginia (0.17%), South Dakota (0.21%) and Nebraska (0.24%). Five other states had more than 0.25% but less than 0.5% foreclosure rates: Iowa, Maine, Mississippi, Montana and Wyoming.

An article at The Money Times has the following:

“It's been a brutal year for foreclosure activity and there's “no end in sight,” said Rick Sharga, senior vice president of RealtyTrac.

“We believe a conservative estimate is that about half of the properties that have been taken back are not currently on the market. They know if they are released on the market at the same time, they will have a devastating effect on home prices,” added Sharga.

The difficulty in understanding what the foreclosure situation means for the housing market rests on the fuzziness of the data. In 2009 2.8 million homes were in the foreclosure process. It is not clear exactly how many proceeded to REO status, but it is probably a small fraction, certainly much less than half. Of those, probably 1/2 are being withheld from the market, as indicated above. That means a rough estimate would place about than 700,000 REO properties on the market during the year 2009. Of course, there would be a holdover from 2008 (my estimate is about 600,000). That means a total as much as 1.3 million homes would be available as REO listed properties during 2009. The NAR (National Association of Realtors) has reported that about 30% of sales are distressed properties. This would include foreclosure auction sales and short sales in addition to REOs. Of the 6 million existing home sales in 2009, approximately 1.8 million would be distressed and many of the 1.3 million listed REOs would be sold. We would then be left with about 700,000 still in REO status but not yet listed, plus additional foreclosure actions yet to be started.

If the estimate published by Jody Shenn at is reasonable, there will be 7 million foreclosures completed after 3Q/2009. That number is about double the 3.7 million I have estimated have already occurred. My current estimates would estimate 7 million likely for the entire cycle, not just after 3Q/09.

RealtyTrac has estimated that the number of foreclosure filings in 2010 will rise to 3.5 million. That creates a shadow inventory for 2010 about 2.4 million homes. That is the total of about 1.7 million repos resulting from 2010 filings plus a 700,000 unlisted REO carry over from 2009. How many of these are actually listed remains to be seen. RealtyTrac is quite sanguine about that, however, taking the position that eager buyers will quickly soak up the supply. That does seem a bit optimistic at the current existing home sales rate of about 6 million per year, according to the NAR. For the optimism to be justified, total home sales will have to rise significantly from 2009 levels. The shadow is 40% of current sales.

Disclosure: No stocks mentioned.