In Les Christie’s article Foreclosures spiked in August [CNN/Money] foreclosures are beginning to be a worry. According to Realty Trac, 115,292 properties went into foreclosure in the month of August, up 53% from last year. Florida saw the highest year over year change in the nation at 62%.
The takeaway here is that foreclosures are way up on a percentage basis and the market is looking at a large number of mortgage rate resets this year. Actually mortgage resets will probably be a way of life for the real estate economy and not a new phenomenon anymore if mortgage rates trend up further or remain where there are since they are still above levels of a few years ago.
While this sounds like a lot of foreclosures and it seems scary, the numbers still need some perspective. Realtytrac provides a great service but since it is only a few years old they don’t seem to have historical data beyond a few years ago. In other words, I want to know how these numbers compare to the last couple of recessions, rather than to last month or last year.
So do the August foreclosure numbers seem large? Not really.
The National Association of Realtors’s existing home sales and new home sale stats total about 7 million homes. With 11,292 forclosures nationally for August or 135,504 annually, thats about 1.9% of all homes sold this year would be in foreclosure.
Since the 1.9% figure I estimated is only based on 1 year’s worth of sales, and assumes that no sales from any prior years have mortgages (which is silly), the demoninator in the equation should be significantly larger, so the foreclosure rate should be a far less than 1%. That might be another interesting way for RealtyTrac to present their results. They could compare their numbers to the national housing stock that has mortgages.
Most lenders I talk with are experiencing foreclosure rates of less that 1/2% of the loans outstanding yet the number is rising slowly. In the bleak foreclosure years of 1990-1991, the national rates were averaging 3-5% if memory serves me correctly.
My assumptions are consistent with the findings of Property Shark. For example, in Miami, the posterchild for housing bubble markets, the foreclosure rate [BW] is four times that of New York yet the rate is still only .066% of the housing stock. If the foreclosure rate doubles over the next 6 months, its still only 0.13%. Thats not 1.3% nor is is 13%. Its 0.13% That seems pretty small.
I am not suggesting that foreclosures are not a growing problem, but please, lets keep things in perspective.