New Foreclosure Activity On the Decline

I haven’t focused on new foreclosure activity for a while because the topic has become somewhat irrelevant, analytically speaking.  The question is not whether a large “shadow inventory” of foreclosed homes exists — it does — but whether and over what timeframe that inventory will actually become relevant by entering the market.   That being the case, the question of how fast the shadow inventory might be growing isn’t terribly high on my list of compelling topics.

It is nonetheless at least mildly interesting to note that new foreclosures, as measured by mortgage default notices, have slowed substantially.  They are still significantly higher than they ever got before the current bust, but the accompanying graph shows that default notices have been dropping in a fairly steady manner for almost a year now.

It could be that fewer borrowers are unable (or unwilling) to pay their mortgages, but that is not necessarily the case.  There are numerous anecdotal tales of people who have long since stopped paying their mortgages but haven’t gotten a notice of default yet.  It could just be that lenders are letting things slide to push off foreclosure for a while until they see what comes down the bailout pike.  Also, short sales, which allow borrowers to avoid foreclosure by selling their homes for less than the mortgage amount, are quite common and could be heading off a lot of outright foreclosures.

Whatever reason, the number of homes officially entering the foreclosure process has declined steadily and significantly since early 2009.

— RICH TOSCANO