A Good Sign For Housing: Foreclosure Activity Down 8% In November

It may be another sign of a bottoming in the housing market, both in terms of foreclosures and prices. RealtyTrac reports that foreclosure filings fell 8% in November compared to the previous month, down to 306,627. One in every 417 homes in the US received a foreclosure filing during the month.  The figure was up 18% from November 2008.

“November was the fourth straight month that U.S. foreclosure activity has declined after hitting an all-time high for our report in July, and November foreclosure activity was at the lowest level we’ve seen since February,” said James J. Saccacio, chief executive officer of RealtyTrac. “Loan modifications and other foreclosure prevention efforts, along with the recently extended and expanded homebuyer tax credit, are keeping a lid on the most visible symptoms of the nation’s ailing housing market — foreclosures and home value depreciation.”

Nevada, Florida, and California remain the states hit hardest by the housing crisis and the inventory of unsold homes in those state may force prices to fall well into 2010.

The improvement in foreclosure rates could be temporary. Future home values are now based on a race between unemployment and underwater mortgages on the one hand and tax credits and low mortgage rates on the other. Recent data show that about one quarter of home loans are underwater. People with mortgage balances that are larger than the value of their housing have some real incentive to turn the keys into their banks. The period when home equity could be used for retirement or college payments is over and may not return for years. Many mortgage holders are also faced with resets from “interest only” loans and this could also drive up home loan default rates.

Unemployment has grown by an average of over 300,000 people per month in 2009. That rate slowed to 11,000 in November but seasonal layoffs will probably increase in the retail industry as the holidays end.  Ongoing poor access to credit and weak consumer spending could force more firings across many sectors in the first part of 2010.

There is also reason to believe that mortgage rates will not stay at historic lows. Federal borrowing is taxing the global capital markets. Sovereign governments are likely to continue to raise money to offset deficits. Central banks may also begin to raise interest rates if they see speculative bubbles forming in the equities and commodities markets.

Many of the forces that cause high foreclosure rates have not gone away, and some of them are growing in strength.

Douglas A. McIntyre