RealtyTrac released its monthly data on foreclosure activity in the U.S. for February today. The news isn't great, but it does provide a glimmer of optimism. Foreclosures continue to increase year-over-year, but last month saw the smallest annual increase since January 2006. As with all February economic data this year, weather might have been a factor, but is it entirely to blame for the decline?
There were 308,524 foreclosure filings in February. That's 2% fewer than in January, but still 6% higher than a year prior. RealtyTrac CEO James Saccacio explains his take:
"The 6 percent year-over-year increase we saw in February was the smallest annual increase we've seen since January 2006, when we began calculating year-over-year increases, but it still marked the 50th consecutive month of year-over-year increases in foreclosure activity," said James J. Saccacio, chief executive officer of RealtyTrac. "This leveling of the foreclosure trend is not necessarily evidence that fewer homeowners are in distress and at risk for foreclosure, but rather that foreclosure prevention programs, legislation and other processing delays are in effect capping monthly foreclosure activity -- albeit at a historically high level that will likely continue for an extended period.
"In addition, severe winter weather appears to have temporarily slowed the processing of foreclosure records in some Northeastern and Mid-Atlantic states."
While it's good to see foreclosures slowing, they're still pretty bad. As Saccacio says, it's still the 50th consecutive month when we've seen more foreclosures than in the prior year. That's not particularly comforting.
How meaningful is it that last month had the smallest increase in foreclosures since at least January 2006? While a positive sign, I wonder if it's more indicative of the housing bubble's cycle. The market peaked late 2005/early 2006. The wacky subprime mortgages started well before that, so it makes sense that foreclosures have been increasing since 2006 -- credit underwriting had been relaxed for some time leading up to the market's climax. And since foreclosures were so low to begin with up to then, it didn't take many for a several percent increase.
What I think would be more tell is how the current number of foreclosures compares to the number that the U.S. was regularly experiencing before the housing market became overheated, say in the mid-1990s. Unfortunately, RealtyTrac didn't keep foreclosure rates back then and neither did anyone else to their (or my) knowledge.
Then, there was snowmageddon. It had some effect, but can't be held solely responsible for the decline from January. Some of the foreclosure capitals, which were unaffected by the snow, saw their month-over-month rates decline too: Nevada down 7%, Arizona down 21% and California down 5%. In fact, the only top-5 states that saw their rates increases in February were Florida and Michigan, by 15% and 14%, respectively.
Moreover, the Northeastern and Mid-Atlantic states haven't been driving foreclosures. Maryland is the only one that makes it into the top-10 worst -- and its foreclosures increased by nearly 10% in February. If you add up Maryland, Virginia, DC, New York, New Jersey, Delaware, Connecticut, Pennsylvania and Massachusetts they only made up 9% of foreclosures in January. But those states' foreclosures did decline, on an aggregate basis, by 17%. The remaining states declined by only 1%. So the snow did have some effect, but the rate of foreclosures definitely declined even if the effect of snow is taken into account.
Finally, I think that Saccacio is right about delays slowing down foreclosures more than housing market health. Until we see some steeper drops, it will be hard to conclude that the housing market is clearly on the mend.