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For sale signs are posted on a foreclosed house in Glendale, California. According to CoreLogic, fewer homes in the state are headed for bank ownership.
There are more signs that the housing market is improving. Real estate analytics firm CoreLogic has just released new data on the so-called “shadow inventory” of homes. Those are properties that have delinquent mortgages, are headed into the foreclosure process, or have been foreclosed and belong to the bank, but haven't yet shown up in real estate listings.
"Don’t be afraid of the shadows," is CoreLogic's message. Why? Because nationally the shadow inventory has declined more than 12 percent since last year. During the three months that ended in October, California saw the second largest drop in the type of mortgage delinquencies that typically lead to foreclosure — almost 10 percent, behind Arizona at just over 13 percent.
California has a housing shortage at the moment. That means there’s demand for these properties. So any home that's on the verge of emerging from the shadows will rapidly find a buyer. In a statement, CoreLogic chief economist Mark Fleming addressed the national shadow inventory situation:
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Compton is the latest Southland city to declare bankruptcy.
Compton could become the fourth city in California to head for bankruptcy, according to Reuters. The Los Angeles County municipality, just south of L.A., would join Stockton, Mammoth Lakes, and San Bernardino in confronting Chapter 9 protection.
Compton's situation is extremely worrisome compared to much larger San Bernardino and Stockton, but it's not exactly surprising. Compton's current budget deficit, at $43 million, is substantially bigger than Stockton's $26 million but about the same as San Bernardino's $45 million. But Compton's population is only 93,000. San Bernardino's is over 200,000 and Stockton's is over 300,000.
And if you follow Reuters' reporting, $37 million of Compton's budget shortfall has materialized just since July 10, as financial officials and the city council have worked through severe revenue losses.
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A construction worker cuts a piece of wood on the top of a home under construction at a new housing development in Petaluma, California. New homes sales have picked up, but in California, economists argue we still lack supply.
The Commerce Department released data on sales for new homes in the U.S. today. And the news is good — for the most part. We saw national sales at their highest level in two years, along with a nice bump the sales from April, up 7.6 percent.
What's driving this is tight supply and low mortgage rates, plain and simple. As Bloomberg reports, the number of houses on the market is at "record lows." However, fewer houses for sale are languishing in foreclosure and short sales (that's when the lender agrees to take a sale price for the house that's less than the total amount owed on the mortgage), and that's helping prices to get some much-needed support.
My feeling is that the news on prices is better than the news on sales — even news on sales of new homes, which implies some life in the beleaguered building trades and construction industries. We need to see a return to reliably, if modestly, ascending prices to achieve two things: get people who are currently underwater on their mortgages — but not by much — and current on payments back to even; and to re-establish the ability of borrowers to build equity in their homes so that first-time buyers can become first-time sellers and then second-time buyers.
Occupy LA supporters hold up a "Stop Foreclosures!" sign outside of the BNY Mellon Bank. The pace of foreclosures has actually been falling in California for the first half of 2012.
California is continuing a trend from the first quarter of 2012, as foreclosure rates fall year-over-year in cities throughout the state. For example, in the first quarter, foreclosure filings fell 24 percent in Los Angeles, according to RealtyTrac, a company that specializes in foreclosure data. In May, that figure was replicated: a 24-percent drop for the month, on more than 10,000 notices of foreclosure that were sent out in the city.
Why has the state's foreclosure rate been falling when the pace of foreclosures nationally picks up?
The state hasn't seen the same foreclosure backlog as much of the rest of the country. This is because California is considered a "non-judicial" foreclosure state. The process is streamlined here, to avoid a lawsuit.
Ironically, this is supposed to make things easier on the homeowner, but the robosigning scandal that put the brakes on foreclosures by banks was largely confined to states where the foreclosure process is judicial. Borrowers who could seek legal recourse were a bigger problem than borrowers who couldn't, at least not as easily.
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The LA Times has a story today about the accelerating foreclosure process. The bottom is that banks are ramping up their foreclosure activities, after allowing them to lag for various reasons over the past few years.
There's a day-of-reckoning quality to this. Absent some kind of massive federal assistance program to homeowners who are either losing or about to lose their houses — beyond what's already been enacted — this means that the housing market will soon be hit with a large number of "real estate owned" (REO) properties.
I blogged recently about a Federal Reserve white paper that proposes a solution to this foreclosure crunch, in the form of investor-owned rentals. The rental market is picking up and there's a need for more single-family residences, which shouldn't be surprising given all the families that are losing their homes to foreclusure.