Sales of distressed properties accounted for four percent of sales in October 2017, a decline from a peak of about 50 percent in 2009, according to the October 2017 REALTORS® Confidence Index Survey. From October 2008-October 2017, NAR estimates that 5.31 million foreclosed existing homes have been sold to homebuyers, and another 2.94 million were sold to homebuyers as short sales, a total 8.0 million existing homes, or about half of the 14.4 million homes that went through foreclosure process or are in some form, based on Mortgage Bankers Association (MBA)data.
The U.S. Census Bureau’s Current Population/Home Vacancy Survey estimates the number of vacant homes that are foreclosed and undergoing legal proceedings. As of the third quarter of 2017, there were 156,708 foreclosed homes and 160,389 vacant homes undergoing legal proceedings, or a total of 317,097. Foreclosed vacant homes and vacant home undergoing legal proceedings each account for three percent (total: six percent) of the 5.39 million existing home sales in the third quarter of 2017.
These vacant properties that are already foreclosed and those undergoing legal proceedings (assuming properties are in good selling condition) will be in the pipeline for future sales, giving some price relief to homebuyers in these areas.
The Mortgage Bankers Association also counts the number of homes undergoing some form of foreclosure process (whether vacant or not vacant). Nationally, as of the end of the second quarter of 2017, there were 502,437 mortgages in some form of foreclosure action, comprising about 1.3 percent of outstanding mortgages. Relative to existing home sales, these mortgages in the foreclosure process accounted for nine percent of existing home sales in 2017 second quarter.
New York, Florida, New Jersey, Illinois, California, and Pennsylvania account for about half of the foreclosure inventory. The foreclosure inventory has generally taken a longer time to get worked out in states which only follow a judicial process such as New York, New Jersey, Florida, and Illinois.
As of the second quarter of 2017, the foreclosure inventory in New York and New Jersey accounted for about four percent of mortgages in those states. Relative to total number of mortgages, all states had lower foreclosure inventory in the second quarter of 2017 compared to the rate in 2009. New York and New Jersey, which are judicial states where foreclosures are resolved through the courts, have had the longest foreclosure process. In these states, the share of mortgages undergoing some form of foreclosure process has not changed compared to the rates in 2009. On the other hand, Florida, Nevada, Arizona, California, Michigan, Illinois, Minnesota, and Indiana have undergone a more rapid decline in their foreclosure inventory.
In summary, the number of home foreclosures have been falling, as home prices continue to appreciate, allowing homeowners to refinance or sell their properties at a gain (positive equity). Sustained job growth is also enabling homeowners to service their mortgages on time. Vacant properties that are currently foreclosed or in some form of legal proceeding account for six percent of existing home sales, and properties (vacant or not vacant) that undergoing a foreclosure process account for nine percent of existing home sales. Assuming these properties are in good condition to be sold, the additional inventory of homes for sale arising from these properties will create some price relief to homebuyers, especially in states like New York, New Jersey, and Florida.
