Foreclosures Keep Rising: How Bad Is the Housing Market?

Foreclosures spiked in August, with banks seizing 95,364 homes, according to RealtyTrac, a housing research firm. They were up 25 percent from August 2009 and at their highest level since the company started tracking this data in 2005.

This is frightening news for homeowners, home sellers, and home builders who may feel like they are barely hanging on, because it signifies continuing weakness in the housing market. But all of the news isn't bad, since this may signify that the worst is over. Here are some considerations:

• The trend may reverse. Actual foreclosures lag defaults and foreclosure notices, and both of these latter categories are going down. Default notices peaked in April 2009 at 142,062 and were at 96,469 last month, 30 percent below their year-ago level.

• The government programs have disappointed. Lots of foreclosures are coming now, because it took some time for folks trying to modify their mortgages under the government's Making Home Affordable program to wash out. Some homeowners didn't qualify, others did qualify but then fell behind on their modified mortgages. The Obama Administration mortgage relief program is now estimated to be able to help only one-sixth of the three million homeowners it had intended to aid.

• Homeowners who are current may have options. Last week the Obama Administration launched its latest effort, which would help homeowners who are underwater (they owe more than the house is worth) with their mortgages but are making timely payments by reducing the amount owed. That's good for folks who want to refinance but haven't been able to, but there are ramifications. One, it will lower their credit score. And any secondary debt, such as a home equity line of credit, will greatly complicate any modifications, or make them impossible.

• It's all regional, remember? Some housing markets are doing just fine. The biggest trouble spots in August probably sound familiar: Nevada, Florida, Arizona, and California. If you think you want to retire to one of those previously popular locales, it's a good time to go shopping for your next home; you'll get an excellent price. But beware the monthly fees: In communities with lots of foreclosures, people are walking away from their condo associations, too. The folks left are being forced to pony up higher amounts every month to make up for missing neighbors.

• Bargain hunters have plenty of time to catch the auctions. There's going to be a lot of inventory for a long time. Foreclosed homes actually put up for auction reached 147,003 properties in August, and that number can be expected to go up before it goes down. Rick Sharga of RealtyTrac has said that lenders will be careful not to flood the market by putting all of their repossessed homes up for sale at the same time. There is already more than year's supply of existing homes on the market now. We at CBS MoneyWatch still think homeownership makes a lot of sense, but there's no need to rush.

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