More Foreclosures on the Way?

Several weeks ago, the attorney generals for 49 states came to an agreement with five of the nation’s largest lenders to settle several charges,  including the 2011 “robosigning” debacle. With that behind them, the lenders can begin to rid themselves of nearly 3 million seriously delinquent or in-foreclosure loans. This is both good and bad for our housing market.

The bad news is that RealtyTrac, online seller of foreclosed properties, estimates that the number of repossessed homes will spike to over 1 million in 2012, up from 804,000 in 2011. With this increased supply, home prices will almost certainly face downward pressure in 2012.

There are several pieces of good news that come with the settlement. The delinquent inventory being held by banks has to be cleared for the long term health of the housing market. And as part of the settlement, banks are agreeing to use at least $20 billion for 1) principal reductions for homeowners who are underwater and 2) refinancing homeowners who are current on their payments. This will most certainly have the effect of eliminating a large number of foreclosures that would otherwise be coming to the market.

Another positive is that the housing market is as well positioned now as it has been in the last 4 years to absorb this additional inventory. There’s no shortage of people standing ready to buy foreclosed properties. Also, the Rent-to-Buy index in Florida is currently well below 15, making it more affordable to buy a home than to rent. Both of these factors will continue to lend support to home prices throughout the year.