Homeowner Hank: Housing Market Prices & Foreclosure Filings

April 15, 2010

by Scott Sambucci

3 comments

Every week, new home sellers hit the market, basing their initial asking prices on recent contracts, sales, and other active listings, and influencing active market prices.  And what does this have to do with foreclosures?  It provides a glimpse into housing market psychology.

Hank Hill headshotHomeowner Hank down in Texas is underwater in his mortgage, or at a minimum, feels some personal economic strain.  He’s trying to determine if he’s in a walk-away situation or not, with his decision metrics at least partially based on his local housing market conditions.  As Homeowner Hank starts to see active houses sell quickly, get multiple bids, and fetch a decent price, Homeowner Hank starts to think – “Hey – maybe the market’s not so bad.  Things are starting to sell at a good price.  I’m going to hang on for another couple of months.  I don’t really want to move anyway, and if the market is improving, I can start to gain back some of that on-paper loss.”  Aggregating this behavior and market psychology yields fewer delinquencies and foreclosures in the short run.

Looking at delinquencies rates and housing market conditions in 2009, the peak in delinquencies were exactly correlated to the trough in home prices.  As the 2009 housing market strengthened and prices accelerated through the Spring, delinquencies fell simultaneously:

Delinquencies from S&P

Altos-10

And speaking of Texas, Steve Brown of the Dallas Morning News published “Dallas-Fort Worth home foreclosure filings drop 12%” today in which he writes:

Home foreclosures have turned lower for next month’s forced sales.  The 4,861 Dallas-Fort Worth homes scheduled for foreclosure in May represent a 12 percent decline from year-earlier totals. And foreclosure filings are down 21 percent from the recent peak in March, Addison-based Foreclosure Listing Service said Thursday.

His article also provides some local data points of foreclosure rates by county in the Dallas Metro area:

Dallas foreclosures

Home foreclosures have turned lower for next month’s forced sales.
The 4,861 Dallas-Fort Worth homes scheduled for foreclosure in May represent a 12 percent decline from year-earlier totals.
And foreclosure filings are down 21 percent from the recent peak in March, Addison-based Foreclosure Listing Service said Thursday.

Let’s take a look at active housing prices for these counties.  The two markets with the largest decline in foreclosure filings (a good thing) – Dallas and Tarrant County – have housing markets with median ask prices that hit an trough point in March (when foreclosure filings were higher) and are seeing an clear increase each week in the Prices of New Listings.  The two markets with more muted declines in foreclosure filings – Denton and Collin County – have yet to see their housing market ask prices find that seasonal trough but are seeing a slight bounce in the Price of New Listings:

Dallas County

Tarrant County

Denton County

Collin County

So what about today’s release from the Associated Press – “Foreclosure rates surge, biggest jump in 5 years“:

A record number of U.S. homes were lost to foreclosure in the first three months of this year, a sign banks are starting to wade through the backlog of troubled home loans at a faster pace, according to a new report.

RealtyTrac Inc. said Thursday that the number of U.S. homes taken over by banks jumped 35 percent in the first quarter from a year ago. In addition, households facing foreclosure grew 16 percent in the same period and 7 percent from the last three months of 2009.

Seems not every market is as fortunate as Dallas.  Why the big jump nationally?  Let’s go back to the Altos 10-City Composite and look at housing prices and inventory this Spring:

Altos 10 - Price and Inventory

Spring 2010 prices are not experiencing the same “bounce” witnessed in 2009, and housing supply numbers are rising consistently and rapidly.  These effects, on a national scale, could be directly contributing to the spike in foreclosures this Spring.  Favorable market conditions from 2009 aren’t translating into same price increases in 2010, and folks like Homeowner Hank on the fence about whether to throw in the towel might be a little more skeptical of a housing market recovery this year.

By no means is this a rigorous statistical analysis to prove cause-and-effect, but it sure is awfullly interesting to see a correlation that has to be more than coincidental.

Previous post:

Next post: