Whether today's report on foreclosure activity is good or bad news depends on your perspective. We know this much: foreclosure activity increased in March by 6.5%, according to foreclosure tracker RealtyTrac. The tally of 239,795 homes in some stage of foreclosure is lower than levels seen throughout 2009 and most of 2010, but foreclosure activity remains elevated in a historical context. On one hand, more foreclosures mean the housing market will hit the bottom sooner so that it can finally begin to recover. On the other hand, it's hard to be pleased about more Americans' homes in some stage of foreclosure. Let's break down the numbers.

First, here's the historical chart, which shows the various stages of activity, stacked:

foreclosure 2011-03 bars.png

You may recall that foreclosure activity fell off a cliff in November, as "foreclosuregate" began. At that time, banks began to accumulate a backlog of foreclosures, as they revamped and fixed their poor procedures. Since they're still working through that process, foreclosures have failed to meaningfully rebound. Recent enforcement action by federal regulators will likely prolong the problem, as banks must hire consultants to review all foreclosure activity from 2009 through 2010.

So it's hard to know for sure the real level of distressed homes, based on foreclosure activity alone. Tens of thousands of foreclosures have been delayed. It will likely be months before we begin to see foreclosure rates actually reflect what's going on in the housing market.

But the trends are still interesting on some level, particularly when broken out by activity type:

foreclosure 2011-03 lines.png

It's clear that auctions continue to steadily fall, while default notices and bank seizures rebounded in March, by 16.2% and 13.2%, respectively.

Looking at state trends can also be useful. The states with the highest concentration of foreclosures remain mostly the same as in February:

foreclosure 2011-03 states.png

There aren't any huge surprises here. Nevada and Illinois appear to have regressed, while foreclosure activity in most of these other states increased at a more slower pace in March. Of course, all states had far less foreclosure activity than they did a year ago -- especially Florida.

Drilling down a little deeper, here are the worst-10 metro areas:

foreclosure 2011-03 metro.png

Again, this is probably what you would expect. Big real estate boom towns in Nevada, California, Arizona, and Florida take up the entire list. While those percentages of total housing unit scores might not look too terrible, remember that this is just one month's worth of activity.

For the next couple of months, we should continue to see foreclosure activity at relatively lower, but historically elevated, levels. This might be the story for all of 2011, as banks struggle to fix their procedures.

You could think of the situation using the analogy of a sink. If the speed of the water coming out of the faucet hasn't changed much, but the drain is running slower, then the sink will accumulate more and more water. Defaulted properties are the water, and banks' distressed portfolios are the sink. Shadow inventory should continue to grow until defaults begin to decline or banks begin processing foreclosure more quickly again.