Seeing the Light or Waiting for the Next Wave?

In a media release last week online foreclosure specialist RealtyTrac reported that one in every 418 U.S. housing units received some form of foreclosure notice in February. These notices could range anywhere from a first Notice of Default to a Notice of Sale and there are several stages in between so it does not indicate that all of these houses will be foreclosed. However, it does mark the 50th consecutive month of year-over-year increases  in foreclosure activity.

Six states account for over 60% of the national total but more interesting is which of these states show improvement. California is the state with the highest overall activity, however California has improved 5% over January and 15% over February 2009. On the other hand, Florida, which ranks second in total activity, had a 15% increase over the previous month, and 16% over the year. That is of much greater concern when forecasting future REOs.   

So, are we seeing a light at the end of the tunnel or just waiting for the next wave of troubled loans? Well, it isn’t a bright light, but we see a glimmer. BauerFinancial data suggest that home mortgages are the worst of the bad loans. Construction loans and commercial loans, while still a concern, don’t appear that they will set off a whole new wave of foreclosures.

We like to let the data speak for itself. While all past due loans have risen considerably over the past two years,  the construction loans category was the only one of the three that  has shown any decrease at all. It’s minimal, but in the last quarter of ’09, past due construction loans dropped from $75.4 billion to $74.3 billion.   After peaking with a 156% jump  in calendar 2008, by year-end 2009 that percentage of increase was the lowest of the three categories at 45.97%: family homes went up 99.4% and other loans increased by 50%.

We told you it wasn’t a  bright light, but it is a light none the less. In fact, all three categories saw less of an increase in 2009 than they had witnessed in ’08.

Don’t get us wrong. Delinquent loans still make up 5.37% of total loans. We are far from out of the woods. It will take a lot of time, hard work and there will be a lot more foreclosures, but this is the same wave we’ve been dealing with. We don’t see another about to strike.