^[1],br> [click to open RealtyTrac Report]

RealtyTrac released their Q3 2012 U.S. Foreclosure & Short Sales Report ^[1] which shows a pretty clear recent trend:

A timeline that counters the national “recovery” discussion over the past year. Record low mortgage rates and held back distressed activity goosed housing sales and price up using year over year comparisons.

I feel like I have to qualify myself as NOT being a housing bear (a distressed housing apologist) but I still can’t figure out the math: flat to falling incomes, high unemployment, rising taxes and tight credit = housing recovery? What’s missing? (memories of my contrarian sentiment feels the same as 2006, just not nearly so dire ^[2]).

Distressed sales have been held out of the mix as RealtyTrac’s report shows in my distressed housing timeline:

• 2008-2010 – Heavy foreclosure volume as a result of the fallout from the tanking economy and housing market
• 2010 (fall) – Robo-signing scandal ^[3] combined with huge backlogs in judicial states causes a sharp decline in distressed sales entering the market in 2011.
• 2012 (1Q) Major servicer agreement with state attorneys general as distressed volume drops to its lowest crisis level.
• 2012 Calculated Risk and other respected sources call the bottom ^[4] (and they may be right) but doesn’t factor in the distressed sale phenomenon. “Bottom” does not equal “recovery” but rather it’s a step on the way to recovery.
• 2012 (2Q) Distressed sales begin to rise again. By adding lower priced distressed sales in the mix, housing prices stabilize or slip next year nationally (I see Manhattan rising with low distressed exposure and limited inventory).

Foreclosure levels need to resume their elevated levels or we simply don’t create a real, sustainable housing market recovery. We won’t see a tsunami like 2010 as short sales continue at their high levels and the courts are still backlogged, but I believe we will see a more distressed activity in the next few years than we did during the 2012 lull and that will offset rising prices .

Call me crazy.

Q3 2012 U.S. Foreclosure & Short Sales Report [RealtyTrac ^[1]]