As many as 1.25 million of America’s least cared for homes are headed for auction after a year-long probe into foreclosure practices kept them off the market.
Sales of repossessed properties probably will rise 25 percent this year from 1 million in 2011, according to Moody’s Analytics Inc. Prices for the homes could drop as much as 10 percent because they deteriorated as they were held in reserve during investigations by state officials resolved in February, according to RealtyTrac Inc. That month, 43 percent of foreclosures were delinquent for two or more years, from a 21 percent share in 2010, according to Lender Processing Services Inc. in Jacksonville, Florida.
A dispossessory (eviction) notice after the Gwinnett County Sheriff's Office civil court division carried out a foreclosure eviction in Bethlehem, Georgia. Photographer: Erik S. Lesser/EPA/Landov
April 3 (Bloomberg) -- Thomas Shapiro, founder, president and chief investment officer of GTIS Partners, talks about the firm's strategy and the U.S. housing market. He speaks with Betty Liu on Bloomberg Television's "In the Loop." (Source: Bloomberg)
April 2 (Bloomberg) -- Christopher Whalen, a senior managing director at Tangent Capital Partners LLC and author of "Inflated: How Money and Debt Built the American Dream," talks about the U.S. housing market. Whalen speaks with Tom Keene on Bloomberg Television's "Surveillance Midday." (Source: Bloomberg)
Keith Ritter, left, moves belongings from a home he once owned. Photographer: Michael S.Williamson/The Washington Post/Getty Images
Prices for repossessed properties could drop as much as 10 percent because they deteriorated as they were held in reserve during investigations by state officials resolved in February, according to RealtyTrac Inc. Photographer: Victor J. Blue/Bloomberg
“The longer a foreclosed home is in the mill, the bigger the losses,” said Todd Sherer, who manages distressed mortgage investments for Dalton Investments LLC, a Los Angeles-based hedge fund that oversees $1.5 billion. “We have a bulge of these properties coming through the system.”
Homes stockpiled less than a year sell for about 35 percent below the value set by lenders, according to a March 15 report by the Federal Reserve Bank of Cleveland. At two years, the loss is close to 60 percent. A surge of cheap foreclosures may erode prices in the broader real estate market, even as the economy expands and residential building increases, said Karl Case, one of the creators of the S&P/Case-Shiller home-price index.
‘Complete Losses’
“The question on these aging foreclosures is how many are going to be sold and affect prices and how many will be complete losses,” said Case, professor emeritus at Wellesley College in Wellesley, Massachusetts. “Depending on their condition, they could have a big impact on home prices.”
The best measure of the influence foreclosures have on the broader market is the 20-city S&P/Case-Shiller home-price index that tracks deeds, including homes sold directly by banks and deals that don’t use mortgages, said Patrick Newport, an economist at IHS Global Insight in Lexington, Massachusetts. The index probably will fall 5 percent to 10 percent this year, a range that depends on the condition of the mothballed homes, he said.
That compares with a forecast for a 2.9 percent decline by Celia Chen, a housing economist at Moody’s Analytics in West Chester, Pennsylvania, and a prediction of a 3.9 percent decline by Diane Swonk, chief economist of Mesirow Financial Inc. in Chicago.
Building Permits
While foreclosures slowed, the wider real estate market improved. As banks held onto properties, the supply of homes for sale dropped to 2.3 million in December, the lowest since 2005, before rising 4.7 percent the following two months, according to the National Association of Realtors. Spurred by low inventory, building permits that signal future housing demand rose 4.8 percent in February, from the prior month, to the highest level since 2008, according to the Commerce Department.
The Standard & Poor’s 1500 Homebuilding Index rose 0.4 percent today and has gained 23 percent this year.
The S&P/Case-Shiller index fell 3.8 percent in January from a year earlier, slowing from December’s decline of 4.1 percent, a sign of stabilization. The measure has dropped 34 percent from its 2006 peak to the lowest level in almost a decade.
“A lot of people look at bumps in the monthly data and say we’re reaching a bottom,” saidJoshua Shapiro, chief U.S. economist at MFR Inc. in New York. “We won’t be there until this supply of foreclosures clears.”
The National Association of Realtors predicts a 0.01 percent gain in prices for homes sold through multiple listing services, which includes some though not all foreclosures.
Need to be Bulldozed
The Federal Housing Finance Agency’s price index measures sales of homes with loans backed by Fannie Mae or Freddie Mac. That gauge likely will rise 0.7 percent, according to a forecast by the Mortgage Bankers Association in Washington.
A quarter of homes in long-term foreclosure may need to be bulldozed, according to theCleveland Fed’s report. About 500,000 foreclosures in the U.S. are vacant, according to ahousing study Fed Chairman Ben Bernanke sent to Congress in January. Many of them are “badly damaged,” he said.
Gloria Washington, 80, knows about dilapidated foreclosures first-hand. There are four of them on her block on the south side of Chicago. When she applied for a home equity loan last year to fix up her front walkway, she was turned down because her home’s value had plummeted.
“This used to be a good neighborhood, but now all our homes are almost worthless,” she said.
‘They Lack Money’
Whether a foreclosed property is occupied or not, its value is deteriorating, said Tom Popik, research director for Campbell Surveys, a real estate data firm in Washington. The mortgage servicers that oversee the homes aren’t likely to do major repairs, he said. Residents probably would solve a problem like a leaky roof by nailing a sheet of plywood over it, Popik said.
“They lack mo
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