Rebounding Foreclosures Threaten Home Price Gains in One-Third of Major Metros

Last week’s S&P/Case-Shiller Home Price Indices report showed strong positive gains in home prices, but those positive gains are threatened by rebounding foreclosure activity in about one-third of the 20 markets tracked in the report.

First the good news.

Nineteen of the 20 metro areas tracked in the home price report registered positive year-over-year increases in home prices in December — with New York being the only exception. The strongest gains were in some of the markets hardest hit by the housing crisis: Phoenix home prices were up 23 percent, Detroit home prices were up 13.6 percent, and Las Vegas home prices were up 12.9 percent.

All three of those metros were epicenters of the foreclosure crisis but have seen foreclosure activity consistently decline over the past two to three years. According to RealtyTrac 2012 metro foreclosure data Phoenix foreclosure activity in 2012 was down 37 percent from 2011 and down 58 percent from its peak in 2009. Detroit foreclosure activity in 2012 was down 26 percent from 2011 and down 48 percent from its peak in 2010. Las Vegas foreclosure activity in 2012 was down a whopping 56 percent from 2011 and down 73 percent from its peak in 2009.

Those decreases in foreclosure activity are restricting the supply of distressed properties available for sale — both in the form of pre-foreclosure short sales as well as bank-owned (REO) sales — which in turn is helping lift the average prices of distressed sales in many markets.

The average price of a distressed property nationwide in the fourth quarter of 2012 increased 4 percent from the fourth quarter of 2011, and the increases were much higher in some markets, according to the RealtyTrac Q4 2012 Foreclosure and Short Sales Report. Average distressed sales prices increased 26 percent in Phoenix, and were up 22 percent in Las Vegas and 17 percent in San Francisco.

Distressed sales prices increased on an annual basis in the fourth quarter in 15 of the 20 major metro markets, according to RealtyTrac. Given that distressed sales accounted for 21 percent of all residential sales in the fourth quarter, increasing prices on those distressed properties is helping lift overall home prices.

Markets with Rebounding Foreclosure Activity

But in at least seven of the 20 metros, home price gains could be threatened in 2013 by another round of foreclosures and short sales hitting the market during the year. That’s because those seven metros experienced rebounding foreclosure activity in 2012, and much of the new foreclosure activity from 2012 will translate into a rebound in the supply of short sales and bank-owned homes listed for sale in 2013.

New foreclosure activity in 2012 increased from 2011 in Tampa (80 percent), Miami (36 percent), Charlotte (32 percent), Chicago (30 percent), New York (28 percent), Cleveland (19 percent), and Boston (10 percent).

While strengthening demand in these markets may help lessen the negative impact that this additional foreclosure inventory has on home prices, at the very least the influx of distressed inventory for sale will likely act to slow the rate of home price appreciation seen in recent months.

 

Rising Foreclosure Activity in One-Third of Major Metros

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