12 US housing markets getting rocked by foreclosures

[Chris Clothier]

I ran across this article this morning on Business Insider.  It is painted with broad strokes, but it still has some data that could be troubling or encouraging depending on which side of the fence you sit.  I just wanted to see what investors in these states are seeing and if the increase in foreclosures is leading to an increase in opportunity?

http://www.businessinsider.com/states-with-highest...

According to RealtyTrac, bank foreclosures are up 66% year over year and the foreclosure rate nationwide is 1 out of every 407 homes.  There are 12 states that are foreclosing at a faster rate than the national average.  If I'm not mistaken, this is the same trend that precluded the last housing crisis as foreclosures were clustered in a few areas around the country.

Here are the states seeing increased foreclosures:

Delaware
North Carolina
Indiana
Ohio
Georgia
New Mexico
South Carolina
Illinois
Maryland
Nevada
Florida
New Jersey

Anyone feeling a big increase in foreclosures?  And is that good or bad for what we do? 

[Brian Burke]

I can't speak specifically to the markets on this list, @Chris Clothier, but I can say that here in California the vast majority of foreclosures are still in the 2004-2007 vintage loans.  This tells me that we are still sweeping up the mess from the crash that happened in 2007.  

I think this is happening for two reasons. 1. Relapse defaults after loan modifications that kicked the can down the road. We are now "down the road" and its judgment day for these folks.  2. Lenders that just ignored the problem waiting for higher home values so they could recapture as much as possible upon foreclosure.  Values are higher now...time to clean up the books.

By way of a first-hand example of reason #2:  I just bought a house on the courthouse steps that had a $600K loan from 2006. The unpaid balance was over $1 million...meaning that there were $400K in back payments and costs (never made a payment after origination??).  I paid around $350K on the courthouse steps. The house is worth around $525K. Had the lender foreclosed in 2009, the house probably would have sold at auction for around $200K.  Instead, the lender waited and got 175% of what they likely would have received back then.  I think we'll see more of this now that the upward trajectory of prices has slowed and there will be little benefit to lenders by waiting much longer.