CoreLogic: Housing and Economy Looking Up; Judicial Foreclosures a Hurdle

by devteam March 9th, 2012 | Share

CoreLogic’s March edition of The Market Pulse, produced in a magazinernformat, has two articles that caught our attention.  The first, “Keep on Trucking,” contains onernof the most positive takes on the economy and the role of housing that we havernseen in a long time.  The second article reviewsrnand provides support for one theory of what is holding back any housing reboundrnin some metropolitan areas.</p

First the economy.  CoreLogic says that a positive trend isrnclearly emerging as good news continues. rnThe GDP was expanding at a 3 percent rate in the fourth quarter of 2011,rndefying some economic expectations that growth could slip below “stall speed,rnand CoreLogic is looking for 2 percent growth in early 2012 “despite thernbuffeting blows of a slowing European economy and increasing U.S. fiscalrnconstraints.”</p

Initially business investment inrnequipment and software were driving the economic expansion as businessesrnsubstituted labor for capital as they cut costs and sought greaterrnefficiencies.  Now investment inrnequipment and software and productive growth are all falling signaling the needrnto create more jobs.  And private sectorrnjobs are being created – 253,000 in January – which, in turn is leading tornincreased consumer confidence.  And that bringsrnthe report to housing.</p

The report says that one of the biggestrnconcerns for the housing market is the lack of demand which is no surpriserngiven how many people were hurt by the housing market in the past fivernyears.  This, coupled with the economicrnsituation has led to uncertainty which leads to inaction, thus many potentialrnbuyers are voluntarily not participating in the housing market while manyrnothers are shut out because of insufficient equity in their existing homes.  As labor markets grow and confidence returnsrndemand will as well.</p

CoreLogic ticks off some key points.</p<ul class="unIndentedList"<liWhilernsales of both new and existing homes are ragged, they are trending up andrninventories are dropping. The supply ofrnexisting homes dropped to 6.1 months in December, the lowest point since Marchrn2005. "Research has shown that four tornsix months home supply is a healthy level of inventory that puts neither upwardrnnor downward pressure on prices, so this is a good sign for furtherrnstabilization in 2012."</li<liMortgagernoriginations in October 2011 increased to $108 billion, a significantrnimprovement over the low point of $60 billion the previous May. Much of the origination activity is due tornmortgage refinancing which made up 74 percent of originations. The long run average share of refinance activityrnsince the beginning of the millennium is 55 percent, due largely to low-raternenvironments throughout the decade and the high level of equity extraction duringrnthe housing boom. Year to date throughrnOctober 2011 originations topped $784 billion and at the current rate isrnexpected to be right around one trillion for the year.</li<liThernmortgage market, while still small by recent historic standards, is slowlyrngrowing on the strength of refinance activity. (Editor's note: this report appears to be dealing with datarnas of mid-February). "While thisrnactivity may fade as we move through 2012 if interest rates rise, it may wellrnbe replaced by purchase loan volume from increased home sales."</li</ul

The secondrnarticle in The Market Pulse is “UnlikelyrnCompany – What do Denver, Detroit and Miami Have in Common?” The answer is theyrnrank one, two, and three on a list of most improved markets as ranked by homernsales, home prices, and delinquencies. rnWhat they also have in common is that they do not appear on the list ofrnthe markets with the most clogged foreclosure pipelines.</p

By analyzing thernratio of properties in foreclosure versus properties in lender inventoriesrn(REO) CoreLogic says one can see how foreclosure congestion is preventingrnimprovement in many markets.  Albany, forrnexample, is number 77 (out of 100) on the improved markets list and is numberrnone in congestion with 66 properties in the process of foreclosure for each onernin REO.  The three least improved marketsrnare in the top ten foreclosure congested markets and every MSA in the top tenrnof that list was in the bottom 50 on the improved list.</p

In analyzing therntop and bottom markets CoreLogic said it becomes clear that foreclosure lawsrnmatter.  Nine of the ten least improvedrnmarkets are in judicial foreclosure states while eight of the top ten improvedrnmarkets are among the least foreclosure congested.</p

CoreLogic lookedrnat the performance of several counties that are in the same metropolitan arearnbut are in different states and subject to different foreclosure laws.  “The takeaway is clear; even while adjustingrnfor the same metropolitan geography  rn(which is a control for the local economy, demographic and housingrnmarket dynamics) counties in non-judicial states are able to clear and reducernthe stock of distressed properties more quickly than counties in judicialrnstates, even if they are in the same metropolitan areas.”</p

Where pipelinesrnare congested many properties are prevented from being cleared out which holdsrnback liquidation of these properties into REO and then as distressedrnsales.  While distressed sales arernnegative for home prices and the market in the short term, the shadow they castrnon the housing market prevents house prices from improving and creates an expectationrnof lower prices going forward.  ‘Clearingrnthe foreclosure pipeline can help markets recover in the long run.”

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About the Author


Steven A Feinberg (@CPAsteve) of Appletree Business Services LLC, is a PASBA member accountant located in Londonderry, New Hampshire.

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