(Foreclosure Monitor is an effort by MHP to help public officials determine how best to use their resources to help homeowners and neighborhoods hard-hit by foreclosure)
By Tim. H. Davis
BOSTON, August 23, 2012--- After months in which lenders have struggled to work through the backlog of properties in default, there are signs that foreclosure activity is picking up and that the real estate market may be inching closer to recovery.
Foreclosure Monitor's review of distressed data* by community, zip code and census tract through July 1, 2012 found that there was a 4.4 percent increase in distress from April 1, 2012 to July 1, 2012, which is an indication that banks are completing more foreclosures and clearing off their books a backlog of mortgage defaults. This uptick is a sign that April 2012 may have been a trough in foreclosure distress.
There are several reasons why Foreclosure Monitor is cautiously optimistic about the future: the Massachusetts economy, new mortgage delinquencies, stabilizing home prices, the resolution of properties in foreclosure, and the real estate market's ability to absorb the sale of bank-owned homes to private owners. All of these factors have been weighing on the real estate market and all our showing signs of improvement. Here's a snapshot look at each of these factors:
New Mortgage Delinquencies: The Massachusetts economy is performing better than the nation and this should contribute to lower mortgage delinquencies and fewer properties in the foreclosure pipeline. As of June 2012, unemployment in Massachusetts stood at 6.0 percent, lower than the national rate of 8.2 percent. In addition, MassBenchmarks reported that the Massachusetts economy grew four percent in Q2 2012, compared to 1.5 percent for the U.S. In its latest report, Lender Processing Services, Inc. found that in May 2012, 7.2 percent of Massachusetts mortgages were at least 30 days delinquent, but not yet in the foreclosure process, down 11 percent from six months before (Nov. 2011).
Stabilizing Home Prices: Recent data from The Warren Group indicates that home prices are stabilizing, with median Massachusetts home prices down only 0.9 percent from June 2011 to June 2012. This is good news for homeowners with negative equity. Whereas homeowners with positive equity can sell a home to avoid foreclosure, those with negative equity ('underwater") must either make an arrangement with the bank for a price below the outstanding mortgage amount (short sale) or proceed to foreclosure. Stabilizing home prices means we should begin to see a reversal in recent increases in the percent of homeowners with negative equity. Zillow estimates that the number of Greater Boston homeowners with negative equity increased from 16.9 percent in Q1 2011 to 22 percent in Q1 2012.
Resolution of Properties in Foreclosure: As of July 1, 2012, there were 17,428 properties in Massachusetts that had foreclosure activity (a petition was filed or an auction scheduled) in the past year and had not yet been foreclosed, a 20 percent decline from July 1, 2011. It is anticipated that lenders will increase the rate at which they resolve properties currently in the foreclosure process, given that the largest lenders have settled with 49 of 50 states, putting the robo-signing scandal behind them. As part of this settlement, lenders are given credit for loan modifications, including principal reduction.
This effort could not come too soon, as permanent loan modifications under the federal Making Home Affordable Modification Program (HAMP) slowed considerably after the robo-signing scandal broke in the fall of 2010, falling from an average of 1,008 modifications per month in Massachusetts from June to Aug. 2010 to 436 per month from Oct. to Dec. 2010. For the most recent three month period (Mar. to May 2012), an average of 210 modifications were made under HAMP each month, pointing to further decline.
Market Absorption of Bank-Owned (REO) Properties: As of July 1, 2012, there were 5,171 properties in Massachusetts that had been bank-owned for up to two years. Except in the most distressed neighborhoods, the Massachusetts real estate market should be able to absorb these foreclosures. According to data from The Warren Group, there were 39,242 property sales in Massachusetts during the first half of 2012. REO properties represent less than one month of sales inventory. While the market may be able to absorb these properties, lenders are not re-selling foreclosure properties to private owners quickly. Of the 4,665 bank-owned properties as of July 1, 2011, 2,983 had been resold by July 1, 2012. At this rate, it will take lenders 21 months to dispose of the REO properties held now.
Communities: Most in top 30 showing decline in distress
Of the top 30 most distressed communities in Massachusetts,18 had a decline in distress from July 1, 2011 to July 1, 2012. Distress was unchanged in four communities and increased in the remaining eight communities. Of the eight communities in this list with an increase in distress, only Attleboro has more than 10,000 housing units. Distress increased five percent in Attleboro from the previous year. Brockton continues to have the highest level of distress, despite a 19 percent decrease in distress from July 1, 2011 to July 1, 2012,
Back in Oct. 2010, Foreclosure Monitor reported that for the first time, suburban/rural communities had a higher rate of distress than the urban Gateway cities and Boston (50.6 to 49.4 percent). That gap has continued to widen slowly, to 53.8-46.2 percent as of July 1, 2012. This shift is due in large part to the fact that distress is declining faster in Boston (-23 percent) and the Gateway Communities (-16 percent) than in the remainder of the state (-10 percent) over the last year. Other highlights from our latest community analysis include:
The largest decline in distress was in Winchendon (-26 percent).
The number of Worcester County communities in the top 30 declined from 14 in July 2011 to 13 in July 2012.
The number of Plymouth County communities increased from six to eight over the same period.
Boston ranked 161st of the 292 municipalities ranked in its rate of distress, but had the highest number of distressed units (2,171) due to its sheer size.
Springfield had the second-highest number of distressed units (1,350) in the state, followed by Worcester (1,283 units) and Brockton (937 units).
Zip codes: Most distressed continue to show improvement
Only five of the top 30 zip codes had an increase in distress from July 1, 2011 to July 1, 2012. The largest increase was in the small Worcester County zip code of 01436 in Templeton, where a small increase in the number of properties can contribute to a large percentage increase in distress (238 percent). Increases in distress were also seen in Wareham's 02538 (18 percent), Carver's 02330 (eight percent), Worcester's 01607 (six percent) and Springfield's 01107 (six percent).
This quarter, Brockton's 02302 regained the top spot as the most distressed zip code in Massachusetts, a position it last held one year ago. Springfield's 01109 was the most distressed zip code last quarter.
Worcester County continues to have the highest number of zip codes in the top 30, with nine (down from 11 one year ago). Hampden County had five zip codes in the top 30, all of which are in Springfield. Essex and Plymouth Counties each have four zip codes in this list, largely because of Lynn (Essex County) and Brockton (Plymouth County). Boston had two zip codes in the top 30: 02126 (Mattapan) and 02136 (Hyde Park).
Census tracts: Half of top 30 most distressed in Springfield and Brockton
While the number of housing units in a zip code can range from dozens to more than 20,000, the number of units in a census tract generally ranges from 1,000 to 3,000, providing a smaller area of analysis that shows us where the high levels of distress are in urban neighborhoods.
As of July 1, 2012, the 30 most distressed census tracts were located in ten municipalities, up from eight municipalities in July 1, 2011. Springfield had the highest number of census tracts in the current top 30 (eight), up from three tracts the year before. Of these Springfield tracts, five had a decline in distress since a year ago and three had an increase. This is indicative of the fact that while distress levels in Springfield are improving, they are not improving at the same rate as the state as whole.
In Brockton, the number of census tracts in the top 30 remained unchanged from a year ago, at seven. Of these tracts, four had an increase in distress and three had a decline in distress.
Boston, Lynn and New Bedford each had three tracts in the top 30. Boston had the most tracts in the top 30 in July 2011 (eight). While distress has declined significantly in the Boston neighborhoods of Dorchester and Roxbury, distress continues to be high in Mattapan. For New Bedford, this represents an increase from one tract a year ago, and for Lynn, this represents a decline from four tracts a year ago.
Worcester had two tracts (down from four tract last year), and Lawrence had one tract (down from two). Attleboro, Carver and Haverhill were not in the list a year ago, but had one tract each in July 2012. Lowell, which had one tract in July 2011, had no tracts in the top 30 in 2012.
The biggest increase in distress was Brockton's tract 5113.02, where distress increased 65.4 percent since a year ago, bringing this tract from 186th to 11th. The biggest decline in distress was in Springfield's 8005 tract (-34.4 percent).
For more information
The following links are provided for readers to directly access regular sources of foreclosure and real estate trends, some of which are mentioned in the proceeding analysis:
Foreclosure data: The Warren Group most recently released foreclosure data for the month of June 2012. The number of foreclosure deeds filed in June 2012 (715) was 24 percent lower than the 936 filed in June 2011. This year-over-year decline was the first such decline since Sept. 2011. However, this one-month decline may not be a long-term trend as the number of foreclosure deeds increased 32 percent from Q2 2011 to Q2 2012 and the number of foreclosure petitions (the first step in the legal process to complete a foreclosure) increased 27 percent from June 2011 to June 2012. Nationally, foreclosure activity (as reported by RealtyTrac) was down 4 percent from May 2011 to May 2012.
Real estate sales data: The Warren Group and the Massachusetts Association of Realtors (MAR) recently released their monthly real estate sales figures. The two use somewhat different data sets for analysis. The Warren Group reported a 26 percent increase in the number of single family sales from June 2011 to June 2012, and 0.9 percent decline in median single family sales prices, while the Mass. Association of Realtors reported a 19 percent increase in single family sales and no change in median single family sales prices.
The S&P/Case-Schiller Price Index recently released its May 2012 data. Prices continue to fall nationally, though at a small 0.7 percent from May 2011 to May 2012. Prices in Boston were relatively stable, with a 0.1 percent decline, placing Boston near the middle of the 20 cities measured. Twelve cities had price increases from May 2011 to May 2012, and eight had declines. The biggest annual price increases were in Phoenix (11.5 percent) and Minneapolis (4.7 percent). The largest annual price declines were in Las Vegas (-3.2 percent) and Atlanta (-14.5 percent). Boston prices are currently only 1.5 percent higher than the market low of April 2009, and remain 16.2 percent below the market peak of November 2005.
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*The Foreclosure Monitor follows trends in distress, which is defined as units in 1-3 family properties (including condominiums) where a foreclosure petition has been filed or an auction scheduled in the previous year, or has been bank owned, for up to two years.