Foreclosure Activity Falls to a 12-Year Low
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What does the year-end report say about U.S. foreclosure activity in 2017?
This is Your Money Matters from The Wall Street Journal.
Welcome to Your Money Matters. I'm Charlie Turner in New York. Home foreclosure activity fell to the lowest level in 12 years during 2017. That's according to Adam Data Solutions, which recently issued its year-end 2017 U.S. foreclosure market report. Foreclosure filings were reported on about 676,500 U.S. properties last year. Joining us is Darren Blomquist, who's Senior Vice President at Adam Data Solutions. First of all, Darren, we should say that foreclosure filings is a rather broad term. What do foreclosure filings include?
Those foreclosure filings include the initial notice of default that a homeowner gets when they are delinquent on their home.
What do we mean by 'foreclosure filings' and which stages are tracked?
And then we also look at scheduled foreclosure auctions, kind of the second stage of the foreclosure process where that property is actually going to a public foreclosure auction to go to the highest bidder. And then lastly, we track the actual completed foreclosures, also known as REOs. And in many cases, what happens at the foreclosure auction is the bank ends up taking back the property. Or in some cases, an investor comes and bids and buys the property at the foreclosure auction. So all three of those are lumped up in foreclosure activity. And overall, nationwide, that combined activity was down to a 12-year low. So really, it's firmly back into pre-recession territory when it comes to these foreclosure numbers.
Right. We're talking about fewer than 700,000 filings, and that's way down from a peak hit, I believe, in 2010, right?
That's right. In 2010, we had 2.9 million of these properties with foreclosure filings. So we're down to under 700,000.
How large is the decline in foreclosure filings compared with the 2010 peak?
Down 76% and really a fraction, basically, of what we were seeing at the peak of the crisis.
Now, there was a little bump up in filings during December from the previous month. It wasn't there, but is that relatively meaningless?
Yes, at this point, and it was primarily with the completed foreclosures in December, and that was nothing really out of the ordinary. We actually do see that many times in December as the banks finish up that foreclosure process in anticipation for turning around and listing those properties on the market in the spring selling season.
Darren, what's driving the drop in foreclosure activity? Is it a lack of housing supply?
Well, that's part of the equation, but really the fundamental reason for this low foreclosure activity is much less risky loans that have been originated over the past seven years, really since 2010 and 2009 even, you could argue. And those loans are performing very well. Very few of them are going into default. And so there's just not a lot of foreclosure activity. They're very low-risk loans.
Why are foreclosure rates so low — are loans less risky or is supply the issue?
Now, Part of the reason that those loans are low risk is just they were originated well and underwritten well. But then another part that's helping them perform well is the market is continuing to go up, and that is tied to the low inventory. That's pushing home prices further and further up. So if someone does get into trouble on their mortgage, they have a lot of cushion in terms of home equity typically to work with to avoid foreclosure.
What you're saying is obviously well taken, but if there are a few houses, there's obviously going to be less supply to foreclose on.
Well, yes, that's right, too. But there are homes being purchased. The latest data, existing home sales, it's not going up quickly, but we are at the highest level since 2006, so gradually getting higher and higher. So homes are being sold faster. But part of it is the loans are better. Part of it is we do see still a higher percentage of cash sales than we did during the last housing boom, around 28% to 29% cash sales. And, of course, if you're buying with cash, you're not at risk for foreclosure at all.
I'm speaking with Darren Blomquist of Adam Data Solutions, and you're listening to Your Money Matters from The Wall Street Journal. Thanks for listening, everyone. Darren, there were a few outliers in this report.
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Chapters
7 chapters
1
What does the year-end report say about U.S. foreclosure activity in 2017?
0:02–0:53
2
What do we mean by 'foreclosure filings' and which stages are tracked?
0:53–1:50
3
How large is the decline in foreclosure filings compared with the 2010 peak?
1:50–2:58
4
Why are foreclosure rates so low — are loans less risky or is supply the issue?
2:58–4:16
5
How do home price gains, equity cushions, and cash sales reduce foreclosure risk?
4:16–5:28
6
Which states and metros saw increases or legacy foreclosures despite the national drop?
5:28–7:08
7
Where were the highest foreclosure rates in 2017 and what does that imply for local markets?
7:08–8:03
Speakers
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