Bank repossessions push April foreclosures to 18-month high

Banks taking back more homes across the country is the primary reason foreclosure filings rose 9% in April from a year ago. Irvine, Calif.,-based RealtyTrac reports 125,875 U.S. properties were in the midst of foreclosure last month, which was an 18-month high on the heels of what has been a downward trend for more than two years.

On a local level, foreclosure filings rose in Benton, Crawford and Washington counties, while Sebastian County bucked the trend. Statewide foreclosures rose 46% from a year ago, and were also fueled by bank repossessions – which boosts a bank’s “real estate owned” (REO).

“The REO increase in April was foreshadowed by a 23-month high in scheduled foreclosure auctions in October 2014,” said Daren Blomquist, vice president at RealtyTrac. “Many of those scheduled auctions are now taking place, and properties are going back to the foreclosing lender.”

He said at foreclosure starts continue to decrease, and are running consistently below pre-crisis levels. This indicates that the overall increase in foreclosure activity in April is a continuation of the clean-up phase of the last housing crisis, not the start of a new crisis, he said.

REO UPTICK
Last month there were 45,168 bank repossessions across the country which was a 27-month high led by Florida, Maryland, Nevada and New Jersey. Bank repossessions rose 50% from a year ago. 

Just 12 states ranked higher than Arkansas for increases in REO property last month. Arkansas reported 293 foreclosure completions last month, up 76.5% from April 2014.
Montana had the highest increase in foreclosure completions last month up 500%.
New Jersey ranked the second highest with a 375% increase in foreclosure completions last month.

Experts say while the uptick in REO properties breaks trend, the level is still 56% below market peak in September 2013.

REO PRICING
“While distressed sales typically have a stifling effect on the housing market, in this particular market an influx of distressed inventory could actually help stimulate sales during the spring and summer buying season as new listings become available, often in the middle to lower ranges of the market,” Blomquist added. 

“Banks are liquidating these distressed properties in a seller’s market with a low supply of inventory for sale, which should help them sell quickly and at a price that is relatively close to full market value,” he said.
 
REOs sold for 87% of estimated market value in first quarter, but RealtyTrac said in many markets these distressed properties are selling at a much higher price-to-value ratio.

Local agents said that is the case in the Northwest Arkansas and Fort Smith metro areas.

Jim Long, agent with Crye Leike Real Estate in Bentonville, said there are 182 foreclosure listings in the two metro areas. That is a small fraction of the 2,500 homes on the market as of April 15 from Bella Vista to Fort Smith.

Local foreclosure listings peaked as high as 322 in December 2013. A year ago there were 153 foreclosure listings for sale in the local MLS data base.

Kevin King, broker with Weichert King Real Estate in Fort Smith, said foreclosures are a tiny part of that local market, and are almost nonexistent. Crye-Leike agent Vicki Briolat of Bentonville said area foreclosure listings do not stay on the market long. She said more often now banks are investing in home improvements before they put them on the market. 

“This is a no-brainer for banks to replace flooring, paint and spruce up the property because they will make the money back by gleaning a higher sales price,” she said.

Briolat said the first thing a bank does when they get a property back is order an appraisal which will be used to set the listing price. Given that appraisals are comprised of area comparable sales, Briolat said if there is just one foreclosure listing the impact to other home prices in the neighborhood will be slight. But, if the majority of home sales in a neighborhood are distressed properties the impact on pricing will be much greater.

MARKET RECOVERY
She said the inventory levels are low overall relative to buyer demand which is lifting prices for everyone. 

In three of the four counties noted in this report, home prices through April have posted strong gains so far this year. Crawford County median home prices rose 15% to $107,500. Median sales price rose 14.5% in Benton County to $175,500.  At $155,300 median home prices in Washington County are up 6.5% from a April last year, while Sebastian County home prices are up 1% this year over last, according to MountData.com

“We are seeing additional improvement in housing market conditions due to a decline in the serious delinquency rate to 3.9% far below the peak of 8.6% in early 2010,” said Frank Nothaft, chief economist with CoreLogic.

He said the percentage of homeowners struggling to keep up remains well above the pre-recession average of 1.5%.

FORECLOSURE FILINGS
Benton County
2015: 59
2014: 39 

Crawford County
2015: 7
2014: 3

Sebastian County
2015: 9
2014: 14

Washington County
2015: 24
2014: 13