By Gretchen Wegrich
Foreclosure data released Thursday by real estate analytics companies CoreLogic and RealtyTrac revealed a housing recovery propelled by local market economics and unemployment, as well as the unique foreclosure procedures of each state. Shadow inventory --or unlisted foreclosures --experienced the largest drop in the West Coast states of California and Oregon, while rising 12% year over year nationwide, reported RealtyTrac.
For states hardest hit by the shortage of housing inventory, this 12% national increase in shadow inventory may be a good thing, said RealtyTrac.
"Many of these properties will be listed for sale as short sales in the next six to 12 months, or go through the foreclosure process and eventually be listed for sale as bank owned in the next 12 to 18 months.," the data agency commented, adding, "Some of the biggest increases in unlisted foreclosure inventory were in New York, Florida, New Jersey, Washington and Illinois."
The West Coast states of California and Oregon are illustrating an alternative path where unlisted foreclosures --or shadow inventory --are on the decline. The decline indicates that these two states, at least, are readjusting the foreclosure system in a way that is specific to their individual needs.
Indeed, the recent California Homeowner Bill of Rights and new foreclosure laws in Oregon may be behind the drop in unlisted foreclosures. Both states created new policies intended to create more legal liability for the foreclosing party.
In Oregon, the laws include mandatory mediation while in California, foreclosure plaintiffs have a new private right of action. Both laws are slowing the foreclosure process and causing financial firms to reconsider their strategies.
In addition, the Oregon state Supreme Court is in the process of ruling on a precedental Mortgage Electronic Registration Systems case that may impact foreclosure filings.
Oregon saw its unlisted foreclosures (distressed properties not yet for sale) drop 50% in the last year, while California followed with a 31% year over year decrease in shadow inventory.
Comparatively, Texas and Arizona experienced much lighter 15% and 11% percent annual drops in unlisted foreclosures, respectively.
Overall foreclosure rates are generally lowest in non-judicial foreclosure states like California and highest in the judicial foreclosure states of Florida, New Jersey, New York and Illinois.
Breaking with this trend are the judicial foreclosure states of Nebraska and North Dakota, which fall in the category of the five states with the lowest foreclosure inventory rates. The difference, say analysts, is in unemployment data.
Nebraska and North Dakota have some of the lowest unemployment rates in the nation. North Dakota's unemployment rate is just 3.3%, while Nebraska's is 3.8%.
The full importance of unemployment data and foreclosure activity is revealed by the data at the opposite end of the spectrum; the states with the highest percentage of foreclosure inventory also have some of the highest unemployment rates nationwide.
Nevada had an unemployment rate of 9.7 in January, while Florida's was 7.8%. New York, Illinois and New Jersey all have unemployment rates which vary between 8.4% and 9.5%.
Although the overall outlook of the reports was positive, shadow inventory and local unemployment continue to play a major role in influencing state markets.
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