REO Inventory Mushrooms to 750,000 Properties

Foreclosures continue to rise, yes — more on that in just a second — but perhaps the most stunning number released by RealtyTrac in its monthly foreclosure report on Thursday is the fact that the company’s database topped more than three-quarters of a million bank-owned properties during July. That equates to just under 17 percent of the 4.49 million total U.S. homes for sale in June, using the latest National Association of Realtors’ estimate of housing inventory; in markets like parts of California and Florida, as well as many of the so-called Rust Belt states, that percentage is sure to be much higher. “Bank repossessions, or REOs, continued to be the fastest growing segment of foreclosure activity in July, posting a 184 percent year-over-year increase — compared to a 53 percent year-over-year increase in default notices and an 11 percent year-over-year increase in auction notices,” said James J. Saccacio, chief executive officer of RealtyTrac. “The sharp rise in REOs, combined with slow sales, has resulted in a bloated inventory of bank-owned properties for sale.” If you needed proof that institutional sellers now rule the roost in terms of market pricing, now you have some proof; tie that in with data showing that more than 96 percent of foreclosure auctions in California during July went back to the bank for the starting bid, and it seems likely that REO inventory has only one direction to go in the months ahead. More in the pipeline, too Beyond the boost in REO inventory, the pipeline of incoming defaults isn’t shrinking, meaning that more REO properties are likely to go online in the next two quarters. Foreclosure filings — default notices, auction sale notices and bank repossessions — were reported on 272,171 U.S. properties during the month, an 8 percent increase from the previous month and a 55 percent increase from July 2007, RealtyTrac said. One in every 464 U.S. households received a foreclosure filing during the month. Foreclosure filings were reported on 72,285 California properties in July, the highest total among the states. The state’s foreclosure activity increased 5 percent from the previous month and was up 85 percent from July 2007. On a year-over-year basis, bank repossessions in California were up 427 percent, while auction notices were up 67 percent and default notices were up 34 percent. However, default notices declined 4 percent from the previous month (see HW’s coverage as to why this is). Florida foreclosure activity in July increased 14 percent from the previous month and 139 percent from July 2007. The state posted the nation’s second highest number of properties with filings — 45,884. On a year-over-year basis, bank repossessions in Florida increased 678 percent, while auction notices were up 180 percent and default notices were up 100 percent. Local hotspots mostly in California As has been the case throughout the nation’s housing crisis, California continues to be the primary barometer of the nation’s mortgage pain. The Cape Coral-Fort Myers, Fla., metro area registered the highest foreclosure rate among the 230 metro areas tracked in the July report. One in every 64 households in the metro area received a foreclosure filing during the month — more than seven times the national average. Three California cities followed in the metro foreclosure rate rankings: Merced was at No. 2 with one in every 73 households receiving a foreclosure filing; and Stockton and Modesto were in a virtual tie, each with one in every 82 households receiving a foreclosure filing. With one in every 85 households receiving a foreclosure filing, the Las Vegas metro area’s foreclosure rate ranked No. 5, followed by three more California metros: Riverside-San Bernardino, Bakersfield and Vallejo-Fairfield. For more information, visit http://www.realtytrac.com.