Foreclosure Backlog Hits 1.7 Million Homes

There are 1.7 million homes on the market which have gone through the foreclosure process. The number is at the highest level in history. The number, up from 1.1 million a year earlier, is likely to keep rising through the middle of next year or later, said Mark Fleming, chief economist of First American CoreLogic, the real estate research firm that released the studyThe news is another indication that there will be ongoing drags on the ability of the housing market to recovery both in terms of unsold inventory and prices.

It is a well-known fact that banks do not want to keep foreclosed homes on their balance sheets and are likely to keep dropping prices to find buyers. It appears that even this tactic, which should stimulate sales, is not working. There are several reasons why.

Many foreclosed homes are in neighborhoods that are partially deserted and will never recover. This is certainly true in parts of the inner cities of Detroit and other municipalities that have lost large portions of their populations over the last decade. Buyers will not enter these neighborhoods no matter how low prices get.

Another hurdle to the sale of foreclosed homes is that housing prices are still dropping. Potential buyers are wary about buying homes even as bargain prices, especially if they have to take out mortgages for the transactions. As prices continue to fall more mortgages move “underwater” as home loan balances exceed the value of the homes that they cover.

One of the most significant problems with foreclosed homes is that have often been unoccupied for months. This sometimes means that a large investment is required to make the residences habitable, which adds signficantly to the overall cost of ownership.

Housing is not recovering. Foreclosures are still rising. So are mortgage default rates. Most important, so are the inventories of homes that are hard to sell.

Douglas A. McIntyre