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Lack of Inventory, Not Shadow Inventory, Is the Real Concern

DS News took some time to chat with Daren Blomquist, VP of RealtyTrac, to get a reading on the current state of the foreclosure market and what is expected to come.

Although foreclosures served to strip homes of their value during the housing crisis, Blomquist says foreclosures will be seen as a welcome sign this year and act as a stimulus.

While this may seem counterintuitive, Blomquist said, “because of the severe lack of inventory available for sale, foreclosures could actually fill that inventory and provide more fuel to

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the fire that’s been slowly building over the past year as more sales occur.”

Though, he added, “this is assuming foreclosures are being done properly,” meaning according to regulation and legislation that’s been passed to protect homeowners.

Currently, Blomquist says there are still a lot of foreclosures that need to be dealt with, but the good news is that foreclosure rates are much lower for newer loans.

RealtyTrac data shows the foreclosure rate for loans originated in 2009 is drastically lower than the rate on loans originated between 2004 and 2008.

For loans originated in 2009 and beyond, the rate is less than 1 percent, while loans between 2004 and 2008 have a foreclosure rate that sits anywhere between 2-5 percent, Blomquist explained.

Even though banks may have a buildup of foreclosures that are yet to hit the market, Blomquist waived off theories that banks are holding onto the properties deliberately and the release of the properties will cause home values to plummet.

“[Banks] are not intentionally holding back. It’s because they’re being so cautious about making sure they’re dotting all their i’s and cross their t’s,” he said.

This, he added, has slowed the process down to a complete halt in some cases and a crawl in others.

As for fears the release of foreclosures will bring down prices, Blomquist isn’t worried this will happen to the market.

“This so called shadow inventory never hit full force, so now I think we’re at a point where the pendulum has swung completely the other way and the housing market needs more inventory, so 2013 would be a serendipitous time for banks to release that inventory,” he said.

Looking ahead, Blomquist says RealtyTrac is still expecting to see around 600,000 REOs in 2013 based on the number of foreclosure starts in 2012, which hit about 1.2 million. Blomquist explained the roll rate is for about 50 percent of foreclosure starts to end up as REOs.

He also says completed short sales are expected to exceed the 2012 number, which will likely be around 1 million.

The foreclosure situation in 2013 also won’t be uniform across the country, but will be on a state-by-state basis, with judicial states dominating much of foreclosure activity in the first half of the year, according to Blomquist.

Then, in the second half of the year, and perhaps into 2014, the spotlight will be on non-judicial states.

Blomquist says this will be because new legislation as seen in California, as well as Oregon, Washington, and Nevada is starting to slow down the foreclosure flow in those areas, which he thinks will result in a backlash of foreclosure activity near the end of this year and into 2014.