Foreclosures Continue to Stymie Housing Recovery


Banks seized more homes in August than in any month since the housing bubble burst in 2007, even as the number of homes entering the foreclosure process dropped for the seventh month in a row, according to data compiled by RealtyTrac Inc.

In all, banks repossessed 95,364 properties last month, up 3% from July and an increase of 25% from August 2009, RealtyTrac said. August was the ninth month in a row that the rate of homes seized by banks increased on an annual basis. The previous high was in May.

Additionally, almost one-quarter of all U.S. home closing transactions involved properties that were in some stage of mortgage distress and sold at a 26% discount on average in the second quarter.

The discount reflects the average sales price of homes in the foreclosure process compared with properties not in distress, according to RealtyTrac. About 24% of all homes sold were in some stage of foreclosure, down from 31% in the first quarter.

"We're still clearly building up more distressed inventory," Rick Sharga, RealtyTrac's senior vice president, said in a telephone interview with Bloomberg News. "That will either put downward pressure on prices or keep them from going up."

A total of 248,534 homes sold in the second quarter had received a default or auction notice or been seized by banks, RealtyTrac said. The number was up 5% from the first quarter and down 20% from a year earlier.

More than 2.3 million homes have been repossessed by lenders since the recession began in December 2007, according to RealtyTrac. The firm estimates more than 1 million American households are likely to lose their homes to foreclosure this year.

Sales of homes in mortgage distress probably will account for one-quarter to one-third of all transactions through 2011, up from one 1%-3% before the housing crisis, Sharga said.

Concerns are growing that the housing market recovery could stumble amid stubbornly high unemployment, a sluggish economy and faltering consumer confidence. U.S. home sales have collapsed since federal homebuyer tax credits expired in April.

Banks are seizing more homes to clear out their backlog of bad loans and will eventually be forced to put those homes up for sale. But they are wary of dumping too many homes on the market at once for fear it will cause prices to implode.

"These (properties) are going to come to market, but very slowly because nobody wants to overwhelm a soft buyer's market with too much distressed inventory for fear of what it would do for house prices," Sharga told The Associated Press.

As a result, lenders are putting off initiating the foreclosure process on homeowners who have missed payments, letting borrowers stay in their homes longer.

The number of properties receiving an initial default notice - the first step in the foreclosure process - slipped 1% last month from July, but was down 30% versus August last year, RealtyTrac said.

After peaking in April 2009, initial defaults have fallen on an annual basis for seven consecutive months.

However, the number of homes up for auction for the first time increased 9% from July and rose 2% from August last year. If they don't sell at auction, these homes typically end up going back to the lender.

In all, 338,836 properties received a foreclosure-related warning in August, up 4% from July, but down 5% from the same month last year. That translates to one in 381 U.S. homes.

Properties in default or scheduled for auction sold for an average discount of almost 13%, down from 16% in the previous quarter and 19% a year earlier. These homes are often sold in short sales, where lenders accept less than the outstanding loan amount for the property, RealtyTrac said. Sales of properties either in default or headed for auction accounted for 9% of all transactions.

The average price was $154,147 for bank-owned properties and $204,932 for homes in default or scheduled for auction, RealtyTrac said.

Nevada had the highest proportion of distressed sales of any U.S. state in the second quarter, with 56% of all transactions involving properties seized by banks or at risk of foreclosure. Arizona ranked second at 47%, while California was third at 43%.


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