Ever wonder when the foreclosure crisis would wind down? That is an important issue, since “shadow inventory,” i.e. distressed homes not yet in the marketplace, is an important reason why available housing stock or “inventory” is so low. Attached is link to a chart showing Portland Metro quarterly foreclosure filings for calendar year 2013. [It is page 9 in a multi-page set of graphics that are not yet displayed. Once I assimilate all of it, I will display all 11 pages with another post.]
As you can see, for the first three quarters of 2013, foreclosures were increasing, not decreasing. Some Oregonians may remember that mid-year in 2012, an Oregon Supreme Court decision [the Niday case] cast doubt upon the legality of non-judicial foreclosures, which were typically quick, i.e. 130+ days. The result was that many non-judicial sales were cancelled, and the banks had to suddenly start doing their foreclosures judicially, i.e. by filing in court. This change-over could not be completed overnight. It took time for the banks and their lawyers to entirely reconfigure their processes. Accordingly, during the last few months of 2012, foreclosures slowed down, and some observers incorrectly predicted that they would continue to do so into 2013.
However, it was not until the end of 2012 that the banks and their attorneys began to get their processes in place. This accounts for why so many more foreclosure were filed in 2Q and 3Q in 2013.
Interestingly, there was a substantial drop-off in filing during 4Q 2013. [Lest you think that the banks did not want to file foreclosures during the holidays, I suspect not. Judicial foreclosures now take almost a year to complete, so filing in the fall does not mean people will be forced out of their homes during the holidays. The filing numbers in 2013 4Q do not reflect final judgments, but only the commencement of the process. Typically, banks don’t “levy” on homes, i.e. force a sheriff’s sale, during the holidays, but that doesn’t mean they don’t start the process then. However, it is possible that some of the larger servicers did, in fact, halt their foreclosure filings during the fourth quarter, which may account for a drop in the numbers.]
What the significantly reduced numbers in 4Q may hint at is a reduction of available homes to foreclose – which is a good thing. The sooner that homes move out of the distressed category, i.e. through foreclosure or short sale, the sooner we should see listing inventories improve as they recycle back into the marketplace.
The one wild card is this: Will the banks slow the process of bringing their REOs to market so as to avoid a glut and reduced prices? The first quarter of 2014 may provide some interesting answers, both in foreclosure numbers [Are the foreclosure numbers really trending down?] and new listings [Will housing inventory begin to increase?]. Stay tuned! ~PCQ