June's 7% Drop in Annual Foreclosures the Biggest Yet

Foreclosures continued their slow decline in June, falling at the same month-over-month rate of 3% as in May, according to foreclosure data source RealtyTrac. But more importantly, the annual decrease hit 7% -- the biggest drop we've seen since the housing bubble burst. While a positive sign, it's not clear if this is just an indication that fewer borrowers are losing their homes or that banks are holding back more shadow inventory from hitting the market.

There were 313,841 foreclosed properties in June. Here's how that looks in a historical context:

You can see the fairly steady decline since the March high. But foreclosures still remained higher in June than they were in February.

The year-over-year change trend is even clearer:

You can see just how significant June's 7% decline was. Unless banks are really working hard to hold back defaulted properties from hitting the market, there's a clear trend here in foreclosure activity slowing down.

On a state-wide basis, the usual narrative didn't change much in June. Nevada, Florida, Arizona, and California remained the four worst, though Michigan fell from fifth to sixth, with Utah taking its place. Here's the top 10:

As you can see, foreclosures fell for most states on a monthly basis. On an annual basis the worst four actually looked quite a lot better. Nevada and California, in particular, saw nearly one-third fewer foreclosures in June 2010 compared to a year earlier.

One interesting trend is that the number of bank repossessions, or REOs, declined after several months of increasing. They were down 9% in June. This might indicate that banks are holding onto properties longer before releasing them. If that's the case, then some of the improvement we saw in June might not be real. This is particularly plausible given the poor home sales since the buyer credit expired in April. Banks may not want to add to the soaring housing inventory. Alternatively, REOs could be down simply because there were fewer foreclosures across-the-board.

Although foreclosures remain quite high, they continued their slow decline last month. We can only hope this isn't an indication that shadow foreclosure inventory banks hold is increasing, but that there are fewer struggling borrowers losing their homes.