Home Foreclosure Surge

Final post of today’s Real Estate marathon:

"LAST WEEK, RealtyTrac published its January U.S. Foreclosure Report. According to the company, the report includes homes in all three phases of foreclosure: pre-foreclosure (notice of default), foreclosure (notice of sale) and real estate owned (properties that have been foreclosed on and repurchased by a bank).

In January, 103,540 homes were in foreclosure, up 27% from 81,290 in December and 45% above last year. January’s foreclosure total was the highest level since RealtyTrac began releasing monthly reports in May 2005."

Pretty crazy, right? Well, he’s the real shocker:  Even though foreclosure activity is accellerating, at 0.7%, its still below the long term trendline of 1%.

"January’s 27% increase in foreclosures is consistent with the increasing foreclosure trend seen throughout 2005. In total, nearly 847,000 properties entered foreclosure in 2005, representing 0.7% of total households. This is still below the historical average of approximately 1%, according to RealtyTrac."

What’s the basis of this increasing foreclosure trend?  Take a wild guess:

"In our opinion, the recent sharp increases seen in foreclosures are indicative of the heightened leverage taken on by home buyers through the past several years of robust price appreciation and record-low interest rates.

In addition, we expect the proliferation of adjustable rate mortgage (ARM) and interest-only mortgage products tied to the short end of the curve to provide an additional headwind as short-term interest rates continue to increase. For 2006 year-to-date, on average, the one-year ARM is 132 basis points higher than last year."

Nothing to see here folks, just move along . . .


Foreclosure Surge Indicates Home Stretch
Ivy L. Zelman
Credit Suisse First Boston, FEBRUARY 27, 2006 2:56 p.m.

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What's been said:

Discussions found on the web:
  1. Norman commented on Feb 28

    Looks like our Super-Blogger is bothered either by a bad trip to SF or by the stock market near new highs as his stories are pretty bitter. To wit, all on Monday:

    1)Home Foreclosure Surge
    2)Non-Core CPI (known elsewhere as “Prices”)
    3)Home Depot CEO: Stunningly Clueless Regarding Employment
    4)Greg Ip Discovers Data Manipulation
    5)New Homes Sales: 4th Drop in 6 months

    Lighten up, big guy.

  2. David Silb commented on Feb 28

    Oh man here it comes the End is near. Our friend the End.

    As for me, I think in the next several months we should see a completely new competition in the housing market.

    Developers trying to get their money out of inventories and investors just trying to get out.

    Who will win. I don’t know but man this has the makings of another great market “Panic” as seen throughout history. Will the federal government help out the homeowner or the homebuilder?

    Will the mortgage interest tax credit/deduction continue into the future (most likely “yes”) or will this accelerate the downward spiral.

    Will the Fed be forced to halt rate increases to allow the housing market to catch its breath.

    As for me I own my home, paying a 30yr fixed, did take out a home equity line of credit, don’t use it. Just in case of emergency. So I don’t have a dog in this fight and I think, no actually hope and pray that the market will just flatten out cause a lot of people have the potenial to get hurt in this one.

    These things usually end in tears.

    Someone make some popcorn this is going to be Greek tragedy of the highest order.


    Is everybody in? Is everybody in? The picture show is about to begin. – Jim Morrison The doors

    Cue the creepy psychedelic music.

  3. calmo commented on Feb 28

    Will the Fed be forced to halt rate increases to allow the housing market to catch its breath.
    Yes. Will they do it in time? Maybe.
    Re the “pretty crazy” foreclosure rates:
    In January, 103,540 homes were in foreclosure, up 27% from 81,290 in December and 45% above last year. January’s foreclosure total was the highest level since RealtyTrac began releasing monthly reports in May 2005.”
    I’m not sure whether it’s the illiteracy of the numeracy or the innumercy of the literacy, but RealtyTrac needs to read these passages before publishing. Do they want to admit to such a short track record? Do they want to go 5 significant figures with the homes and only 2 with the percent change? Do they want to suggest that lending institutions might be bending over backwards lately to make these latest foreclosure numbers look better than they really are?
    This is still below the historical average of approximately 1%, according to RealtyTrac.”
    Can we presume that this history dates back further than May 05? Seriously, can we presume that there is some variance in the foreclosure rate and that any historical average is not meaningful unless the constraints are further specified?
    nothing here, move along What I get from RealtyTrac is not intelligent data handling and if this is typical performance, thanks for the warning.

  4. David Silb commented on Feb 28


    I agree with you. I always find it hard to believe that serious sober people are willing to dress up numbers in some misguided attempt stay off impending doom.

    The car industry is guilty of this. The internet companies, this was their bread and butter. Now the housing/real estate industry is next to fluff numbers against the rising tide of contrary economic indictators.

    Also when I said the ‘will the fed act to save the market’ I know they will and yes it will be late in coming.

    I tell ya where did all the good times go? I am getting pretty tired of the negative data out there.

  5. Joe commented on Feb 28

    I like reading your insight but usually you don’t get swallowed by data like this. May of 05 and they think they see a trend? Come on.

  6. Rick Sharga commented on Feb 28

    Just wanted to offer a few points regarding the RealtyTrac data that is being savaged here:

    First, the data report has been issued monthly since January of 2005, not May (that was someone else’s typo). So the January numbers are being reported as year-over-year. We had been capturing and tracking this data for a number of years prior to creating and releasing the reports. If any of you would like to see the actual February release, it’s posted for free on our website at this link:


    Second, we try to simply capture and present the data, but the numbers offer some fairly obvious points:

    They’re higher than they were a year ago
    They’re higher than they were a month ago
    They were higher in every quarter of 2005
    They’re higher in some parts of the country than in other parts

    There are two other important contextual points for everyone to keep in mind:

    While the number of properties entering the foreclosure market is increasing, the number of properties actually being foreclosed on (auctioned off or re-possesed) is still a low percentage of the total number. This indicates that the real estate market is still relatively healthy.

    And even with the increased numbers of properties entering foreclosure, the market is still below historic averages. This isn’t because lenders are doing anything to misrepresent the numbers; it’s because we’re coming out of one of the longest, strongest real estate booms in the country’s history. And the combination of soaring home values and historically low mortgage rates significantly reduced the number of foreclosures.

    Finally, the quote in the initial post about what’s driving the foreclosures isn’t from us. It might be from Ivy Zelman at Credit Suisse First Boston.

    Thanks for the opportunity to try to clear up some of the confusion. I’d be happy to answer any more specific questions.

    Rick Sharga

  7. Dru Nelson commented on Feb 28


    Barry isn’t talking about what is now, he is talking about what may become the new ‘now’. he presents data to make an argument. Everybody here knows that the market doesn’t move purely on data, it only moves on data that spooks the herd.

    Also, I hate when people use the 5 year window as the definition of market highs. What does an 8 year window tell you about our market highs?

  8. Bobby commented on Feb 28

    Amazing the numbers of people hoping they lose money on their home so they can feel like they understand the real estate market and markets in general. What goes up doesnt always come down. Sometimes it goes sideways.

  9. Dr. Detroit commented on Mar 5

    Okay, so 40% of homes were bot last year with no money down? And 30% of homes bot last year by either investors or folks buying holiday houses? And the home-ownership rate now stands at 30%, an all-time high? Marginal costs to own vs. rent of $1,200 or more in the most bubblefied areas for median-priced homes? Total consumer debt 25% greater than it was in ’91 vis a vis GDP and income levels? Paltry real wage growth since ’01, yet some real estate markets posting double and triple home price appreciation rates over the last 3 to 5 years? National median home price values greater than 20% of historical trend levels? Cash-out refis adding $250B to consumer spending last year? Massive amounts of new homes being built, more than 2mm annual rate, and massive amounts of existing homes for sale? Housing affordability at 20 year lows for first-time buyers?

    Have I got a deal for you!

    Okay, it’s 1999 and you’d like to buy some tech stocks because everybody else owns them. Plunk down nothing and just buy the Qs, right? Yeah, well, 40% of home buyers did that last year with their housing. We don’t need no stinking Reg-T!

    Bloomberg had an interesting story on house prices in Holland during the Tulipmania. Prices for property and homes obviously went to the moon then. So much money! But after that, what do you think the real rate of appreciation has been since?

    The real rate of house price appreciation in Holland after Tulipmania is just a hair over 0.1%.

    But my house is an investment! It’s an asset!

    Sure it is. And its value will grow as its
    earnings grow, just like a stock. Your house has earnings, doesn’t it? No? Well, then, maybe it’ll grow with inflation and real wage growth.

    The recovery since the recession in ’01 hasn’t been like other recoveries. On balance, it’s been driven by indirect or direct investment in housing. Capex from business taking on new projects/risk BLOWS in relation to prior cycles. When the consumer finally decides rates are too high and he can’t take any more $$$ out of his house, well, then we are in trouble.

    Why keep your pants on when you can whip out your HELOC and have a DEBT ORGY!!! Get down, baby! Credit risk and sex: If Tracy Lords was a banker, she’d want more.

    But I digress. That savings rate is looking strong these days, eh? Boom-boom-boom-boom. What’s that sound… Ahhhhhhhhhhhhhhhh… Retirement?

    Did you know that listed equity total marketcap at the peak in ’00 represented 140% of GDP? Care to guess what real estate represents now? According to D. Rosenberg at Merrill, it’s 152% of GDP. Sounds good to me!

    Hold on! Cue the elevator music, CSFB is on the line! What? They want to remind you that their “Panic / Euphoria” index is at extreme ‘euphoria’ levels. That’s right: global stock, bond, and commodity prices are are all at multi-year hights. Yes, well, how often has that index stayed at extreme levels? Good question, Gordo. The answer is: NO. No? You know what I mean.

    “[But] stock prices have reached what looks like a permanently high plateau…”

    Thanks Dr. Fisher!

    “[But] real estate is just gonna go sideways. We’re in a new paradigm!”

    Thanks NAR!



    Can’t pay?


    Hey, I have a friend who’s looking to sell his 450 square foot studio in Manhattan. He bot it for $100,000 and wants to sell it now for $350,000.

    Strap your helmet on, folks. Drama to the downside approaching.

    Get, spend, get, spend, borrow, spend, BORROW, SPEND. Borrow some more. Roll it out. Make the minimum payment! There’s been 56 consecutive quarters of consumer spending GROWTH.

    It will go on FOREVER!


    If you don’t want to buy that studio, you know, you’re looking for MORE in terms of a studio, I hear there is a very nice new building on 83rd and York (great location!) where you can spend $650,000 on a studio. I wouldn’t want to spend that much on a studio, but that’s just me.


    Kim and Jim!
    Dan and Jan!
    Sue and Hugh!
    Mary and Gary!
    Jill and Bill!
    Darren and Sharon!
    Pat and Matt!
    Jeff and Steph!


    “Oh man, I think the clock is slow… I don’t feel tardy… CLASS DISMISSED!!!!!!!!”

    -Van Halen

  10. Dr. Detroit commented on Mar 5

    Typo: National home-ownership stands at 70% now, not 30%.

  11. Jonathan Miller commented on Mar 6

    Calmo and David Silb et al. I am late to the party but I had the same issue with RealtyTrac last fall: http://matrix.millersamuel.com/?p=284 RealtyTrac contacted me immediately after I posted and assured me they would use annual numbers starting in January. It looks like they kept their word. Since there is no other reliable national foreclosure stats out there (that I am aware of), I say lets give them the benefit of the doubt here. However, RealtyTrac could do a better job at toning down the hype. The way their information is being presented, doesn’t pass the smell test from the posts I see here. RealtyTrac should learn from this as it seems to be a pattern.

  12. RealtyTrac Blog commented on Mar 17

    Foreclosures up 11 percent in February

    RealtyTrac released our February 2006 foreclosure numbers today, and they show U.S. foreclosures increasing…

  13. RealtyTrac Blog commented on Mar 22

    Foreclosures up 11 percent in February

    RealtyTrac released our February 2006 foreclosure numbers today, and they show U.S. foreclosures increasing…

  14. RealtyTrac Blog commented on Mar 23

    Foreclosures up 13 percent in February

    RealtyTrac released our February 2006 foreclosure numbers today, and they show U.S. foreclosures increasing for the third month in a row. We show 117,259 properties nationwide entered some stage of foreclosure in February, a 13 percent increase from th…

  15. TOmmy martin commented on Jun 19

    Mitigation and foreclosure Prevention Services, helping homeowners save their home and avoid foreclosure.

  16. John commented on Sep 9

    It was a great report and I really enjoyed reading it. I’m thinking of switching over to real estate buisness and give up medical :D

  17. Resty commented on Dec 21

    It would be hard to figure out when is this home foreclosures uprising will stop. It probably never will. I think it’s all a matter of going along with the tide. No one’s to blame but just everyone is after for their own fair share of profits or benefits.

    The builder wants their extra profits they could make from the houses they build. The lender who knows what other junk fees and unlimited ways they could gouge homebuyers.

    Now the realtor, who would complain if they could list and sell a home for a higher profits…meaning bigger commission.

    The home seller they want the selling price to be as much as it could be.

    Now the end result is the initially excited homeowner. But unaware the ARM payment they have is low for the start. And then they wake to the reality that the income is not keeping with the rising Adjustable Rate…trouble!

  18. Bill commented on Aug 7

    What happens to the general economy when so many families loose their home? Will general retail business suffer? Will there be new financial hotspots ( apartment development, etc. ) ?

    What happens to the banks holding the notes to the forclosed properties? Will they be a burden to our economy/government? Will the general population suffer from this hit?

  19. sonya lee commented on Mar 23

    This blog is great. You are providing valuable information to all homeowners.

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