Are Low Home Prices Coming to an End?

Foreclosures hit 5-year low

Last week, RealtyTrac released its U.S. Foreclosure Market Report™ for September and the quarter of 2012. The September U.S. foreclosure filings were down 16 percent from the year before, and hit their lowest total since July 2007. The third quarter of 2012 represents the ninth consecutive quarter that saw an annual decrease in foreclosures nationwide.

As is to be expected, states where foreclosures were held back last year are seeing more activity, now that a backlog of delayed foreclosures is being addressed. The up-and-down phenomenon is likely to continue over the next couple of years, due to the delayed effects of new laws and court rulings that change foreclosure processes.

Although the numbers are falling nationwide, several states saw an increase in foreclosure activity during the third quarter of this year. The decreasing annual foreclosure rate mainly comes from about half (14 of 26) of the states that primarily use non-judicial process. In contrast, 20 of 24 states that use a judicial process for foreclosures saw increases in their annual rates of foreclosure. (In a judicial state, the lender must go to court and prove that the borrower is in default. In a non-judicial state, the lender only has to notify the borrower that he/she is in default, and then may initiate the foreclosure.)

Also notable is that nationally, the average number of days to foreclose is up to 382. The time it takes to foreclose on a property varies widely by state. In Oregon and Arkansas, the average is under 200 days; in Texas, under 100. New Jersey’s average is a surprising 931 days – second only to New York’s 1,072.

What does the foreclosure rate mean for homeowners and home buyers?

These numbers might indicate that in non-judicial states, the foreclosure epidemic has bottomed out and the worst numbers are behind us. In judicial states, where the process takes longer and is more complicated, a glut of foreclosures is still on the horizon.  High rates of foreclosures put a great deal of downward pressure on the real estate market, pushing prices down. If you live in a judicial state where foreclosure rates are still rising (including New Jersey, New York, Indiana, Pennsylvania, Connecticut, Illinois, Maryland, South Carolina, North Carolina and Florida), you likely still have the opportunity to buy a home at a rock bottom price.

A slowing foreclosure rate could mean that prices have a chance to start climbing back up. In some states, such as California, fewer homes on the market, extremely low mortgage rates and declining rates of foreclosure filings are all factors contributing to an uptick in home prices.

What you should do

If you’re shopping for a home, now is still a great time to buy – particularly if you’re in a state with increasing rates of foreclosure. The market still offers optimal conditions – low prices and low rates. Even in states where foreclosures are down and prices may be starting to recover (including Nevada, Oregon, Utah, Virginia, California, Michigan, Arizona, Colorado, Georgia and Texas), excellent deals are still out there for the taking. But the window on those low prices may be closing.

If you’re selling a home, you need to consider your situation and decide whether to cut your losses or hold on. If you can rent your home and cover your expenses, you might be able to recover significant equity over the long haul. But many Americans own property that is not only underwater, it will not regain its highest value in our lifetime. You’ll have many factors to consider, but one upside to selling your home at a loss is that the next property you purchase will also likely be valued much lower than it was just a few years ago.