Perhaps the Shadow-Supply of Foreclosures is Not as Bad as Touted
Perhaps the shadow-supply of foreclosures is not as bad as touted because the demand for distressed properties has never been so strong. As per RealtyTrac foreclosed homes continues to be swallowed up – the proportion being 20% of all the deals in the third quarter of 2011.
Generally foreclosures are looked at from the supply and price angle. More foreclosures push down prices and create negative equity; dropping home prices cause more foreclosures to roll in. It is apparently a vicious cycle that is fed by shadow-supply. The story seems to have no end in sight.
In the market system of capitalism all the vicious cycles ultimately reach an end. Ironically today this cycle can be broken only by the hot response of the investors as well as the regular purchasers of distressed houses.
Of the total number of residential sales during the third quarter of last year one fifth came from the distressed category. In the second quarter of 2011 and third quarter of 2010 it was 22% and 30% respectively.
The drop in the market of foreclosed homes is party explained because of many hurdles set up preventing swift processing of foreclosures. But despite this “foreclosure sales continue to represent a historical high percentage of all sales” noted RealtyTrac. The shrinking share of foreclosure could also be attributed to fall in delinquencies in home mortgages. The drop has been fairly rapid inCaliforniaas per the findings of Mortgage Bankers Association.
InCaliforniaof the total sales 44% came from the foreclosed group during the third quarter of last year. The foreclosure process is one of the quickest inCaliforniaand thus temporary hurdles do not have much of an impact like it may be in a state likeFlorida.
The demand for foreclosed houses is strong and this is stabilizing the price of foreclosed units on an average. It had climbed by 1% from the second quarter and less by 3% from 2010 third quarter. The discounts offered inCalifornia, on an average were 34% but undue importance should not be given to the figure because it is related to the condition of the properties.
Nevertheless the drop in delinquencies in house mortgages and increase in demand for foreclosed houses may be taken as signs that the end is nearing – shadows and all.
