Foreclosure Mess: 1 Million in 2010
A record one million homes were foreclosed on in 2010 according to RealtyTrac, and the firm 
says 2011 foreclosures will be even worse. The very thin silver lining? 2011 is expected to be the year that the number of foreclosures finally peaks and starts declining. And some housing economists are daring to suggest that a pick-up in job growth this year could get some housing green shoots to at least start sprouting in 2011, potentially signaling a bottom in the housing market.
At the annual National Association of Home Builders convention, the NAHB's chief economist forecast homes sales could rise 26 percent in 2011, and that we could see a 20 percent pickup in building starts. Granted, that's still way off pre-bust levels, and the NAHB is genetically predisposed to be a bit optimistic, but it would be a welcome shift in momentum to the positive. And as MoneyWatch's Ilyce Glink recently reported, the National Association of Realtors also expects a "gradual housing recovery" to at least gain a foothold in 2011.
While a stabilizing economy and the prospect of better job growth is expected to spur more home sales in 2011, that's not likely to translate into higher home prices for a while, given the still growing inventory of foreclosed homes. More ominous than the record one million houses foreclosed on in 2010 is the fact that another 1.8 million homes received "foreclosure filings" in 2010 from their bank -- notices signaling the homeowner was behind and the bank was not pleased.
David Berson, chief economist of private mortgage insurer PMI Group (and former chief economist of Fannie Mae), told the homebuilder crowd that prices could fall a bit more in 2011 before stabilizing in 2012. His expectation is that it will be 2013 before home prices return to their long-term pace of 3.5 percent to 4 percent average annual growth.
Given these forecasts, here are some tips for navigating the housing market in 2011:
- Keep an eye out on job growth. The NAHB's forecast of a better 2011 is based on its expectation that monthly national job growth will average about 200,000 per month. Historically that's not asking a lot coming out of a recession, but it would in fact be a big swing for us right now. We only added slightly more than 100,000 jobs in December. If stronger job growth doesn't materialize, the housing rebound will take even longer than anticipated.
- Tune out the national news. More than half of 2010 foreclosures were in just five states: California, Florida, Arizona, Illinois, and Michigan. You can click-thru on the RealtyTrac map, below, to get foreclosure data on your state.
Source: RealtyTrac
And even state-level data isn't that relevant; if you're contemplating a sale or purchase, what's happening in your local job and housing market is what's most significant. Indeed, in some regions, home prices are already rebounding.
- Forget 4 percent mortgages. The average rate on a 30-year fixed rate loan is about 4.9 percent these days, according to Freddie Mac. That's up from the low 4 percent range in the second half of 2010. The trend is not going to be your friend here. Keith Gumbinger at mortgage-tracking firm HSH says that as long as the economy stays in recovery mode, 2011 mortgage rates could keep inching up, possibly into the mid-5 percent range in 2011. If you're looking to refinance, the sooner the better seems to be your best strategy at this juncture. For buyers, just keep in mind that the longer you wait for prices to bottom out, the likelier it will be that when you do finally pull the trigger, mortgage rates will have risen higher.
Photo courtesy of Flickr user respres
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