Foreclosure News: ‘Trend That Bears Watching’

From RealtyTrac (the link has data for each state; para breaks added by me for readability):

NATIONAL FORECLOSURES INCREASE 17 PERCENT IN THIRD QUARTER
By RealtyTrac Staff
U.S. Foreclosures Up 43 Percent From 2005
Colorado, Nevada and Florida Post Nation’s Highest Foreclosure Rates

IRVINE, Calif. – Nov. 1, 2006 – RealtyTrac™ (http://www.realtytrac.com/), the nation’s leading online marketplace for foreclosure properties, today released its Q3 2006 U.S. Foreclosure Market Report showing that 318,355 properties entered some stage of foreclosure nationwide during the third quarter of 2006, a 17 percent increase from the previous quarter and a 43 percent yearly increase from the third quarter of 2005.

The nation had a foreclosure rate of one foreclosure filing for every 363 households during the quarter, slightly higher than last quarter’s rate of one foreclosure filing for every 425 households, but lower than the first-quarter rate of one foreclosure filing for every 358 households.

….. “Higher interest rates and a general softening of the real estate market are the two key factors contributing to the 43 percent increase in foreclosure filings from the third quarter of 2005,” said James J. Saccacio, chief executive officer of RealtyTrac. “What our third quarter research appears to be showing is that the first wave of adjustable rate mortgages is having a negative impact on the number of homes going into foreclosure. With the volume of these loans — more than $1 trillion of them due to adjust over the next 15 months — this is a trend that definitely bears watching.”

Though this link is to an article back in April, the rate of foreclosures is still currently low in historical context. Of course the big question is whether it will stay acceptably low.

An argument that the current situation is not a serious problem for the real estate market or the economy as a whole comes from Christopher Cagan:

Delivering the results of his research as part of an economists’ panel on the last day of California Realtor Expo 2006 in Long Beach last week, Christopher Cagan, Ph.D., Director of Research and Analytics for First American Real Estate Solutions, said that even with $1 trillion of adjustable-rate mortgages ready to reset to higher interest rates in both 2007 and 2008, he believes the number of defaults and foreclosures resulting from the increased mortgage payments will be “painful but won’t break the economy or the market.”

Basing his comments on data collected on first mortgages — with an emphasis on those originated between 2004 and 2005 — Cagan said, “We have to figure out who has equity and who doesn’t. All those who bought or refinanced in 2003 or earlier are likely to have equity.”

The principal takeway from Mr. Cagan’s white paper (PDF) is this:

The cautious and conservative figures used here suggest that the impact of reset sensitivity (that means interest rate adjustments — Ed.) and subsequent default will be one percent or less of annual mortgage lending, and well below one-half percent of total mortgage debt outstanding. While individuals and firms who are heavily involved in the riskiest loans may suffer, on a national basis mortgage payment resets will represent a far smaller drag on the market than what occurred in the early 1990s.

Hope he’s right.

___________________________

UPDATE: Biz Weak has a slide show that identifies the areas with the highest foreclosure rates. They are (the national % of households in foreclosure is 0.27%):

Detroit (1.249% of households)
Ft. Lauderdale
Denver
Miami
Dallas
Indianapolis
Ft. Worth
Atlanta
Las Vegas
Memphis (0.69% of households)