- The Washington Times - Friday, November 13, 2009

Although this year has seen an encouraging drop in resale inventory, rising sales and even some increase in home prices, foreclosures are still a problem.

Nationally, 0.73 percent of all housing units received a foreclosure notice during the third quarter of this year. In the Washington area, 0.91 percent received such a notice. The Washington area ranked 46 out of 200 metropolitan areas.

Frankly, these numbers surprised me. I expected that the improvements we’ve seen in the existing homes market would mean foreclosures were dropping.

“A lot of people were hoping to see that, but that’s just not the case,” says Rick Sharga, senior vice president at RealtyTrac. “We probably have another year of this before it starts to settle down.”

CHARTING THE MARKET: D.C. Area Foreclosure Filings

Today’s charts show the number of foreclosure filings since January 2008. Although the numbers rise and fall quite a bit each month, total foreclosures for the region aren’t much different than they were last year. During the first nine months of 2008, there were 56,000 foreclosure filings in the Washington area. This year, there were 52,000 during the same period.

That small drop is encouraging, but the lack of a dramatic decrease makes sense when you consider the market dynamics of real estate, which are driven largely by supply and demand. Those are rather different factors than the ones that lead to foreclosure.

Banks foreclose when a homeowner isn’t making payments, and that is going to happen when the overall economy is poor, unemployment is high, etc.

In other words, foreclosures are about individual loans and payment histories, which don’t change just because other homes in the neighborhood start selling.

“There are also a number of borrowers with adjustable-rate mortgages that are now starting to reset,” Mr. Sharga says. “Some are finding they can’t afford the new payment, or they are making ‘strategic default decisions’ because the property has lost 20 or 30 percent of its value.”

Also, unemployment doesn’t immediately force a borrower into default. Mr. Sharga points out that there is typically a three- to six-month lag time between a rise in unemployment and a rise in foreclosures.

“We’re going to have unemployment-related foreclosures continuing through the end of next year,” he says. “We project that foreclosure activity will peak next year, get marginally better in 2011, and won’t be back to normal until 2012.”

Fortunately, Mr. Sharga does not anticipate a sudden flood of foreclosures hitting us anytime soon. There are some who worry about banks releasing a backlog of properties on the market at one time. However, they are having enough trouble keeping up with the properties they currently have.

“We’re hearing - off the record - that some banks are only foreclosing on vacant properties,” Mr. Sharga says. “They aren’t filing on occupied properties because they know the property is at least being taken care of. And they don’t want another vacant, boarded-up house in their inventory.”

Contact Chris Sicks by e-mail (csicks@gmail.com).

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