Massachusetts Foreclosure Activity Increasing

Introduction:

It is no secret that that a high level of distressed homes is a big drag on the real estate market.  These properties in the form of Short Sales and Real Estate Owned (or REOs) by the bank (aka properties banks have taken back with a foreclosure action) usually sell at a discount from retail prices and are often in poor shape.  They also are vacant and if they sit for a long time, as they often do, they are targets for vandalism and can increase crime in the neighborhood.

Short Sale Vs Foreclosure - Massachusetts Real Estate

Recent Massachusetts Foreclosure Activity:

Knowing this it is not encouraging news for Massachusetts homeowners to know that all forms of foreclosure activity has been increasing here.  The items that are tracked are the petitions (which is the first step for a foreclosure), the actual auctions and finally the foreclosure deeds, which is where there bank takes the property back at the auction (nobody else is willing to buy it at the auction).

In November of 2014 all 3 of these items were up a bit over what they were in November of 2013.  Petitions in particular were up a lot.  They rose 150% year over year in November after increasing 91.5% in October, and they have increased for 9 straight months.  For the year to date through November petitions are up 42.2 percent compared to the first 11 months of 2013.  In addition auctions increased 24% and foreclosure deeds increased 20.3% and have increased for 4 straight months.

What Does This Mean For The Market? :

Let’s talk about what all of this means.  First it is important to understand the lag time in a foreclosure.  Once a petition is filed it will be several months before a property would actually go to auction and if the bank takes it back at auction it can sometimes take months to file the foreclosure deed.  So seeing a huge increase in the number of petitions is a leading indicator that in a few months there will be a surge in auctions and then shortly after an increase in foreclosure deeds.

A major influx of REO properties can definitely have a negative impact on the local real estate market.  First the most obvious issue will be an increase in inventory.  With higher inventory regular home sellers will have more competition from these houses.  Next issue is that even the houses that are in good condition they will often sell for somewhat of a discount.  Banks have been trying to get much closer to retail price as the market has improved, but it is still typical for at least a small discount to be seen.  Now this is for the places that are nice and in good shape.  The next issue is that foreclosed properties are often in bad shape, be it from general neglect, the inability to afford to upkeep the house or the willful trashing of the house by the upset former owners.  These homes are generally sold “As Is” and can be priced well below others in the area.  However, they also are the least appealing to most buyers so unless they are priced extremely low they also are the ones that stay on the market the longest.  These are the blighted properties and make a street look bad and drag down the value for everyone else since living near this house is a deterrent in and of itself.

Conclusion:

The looming increase in foreclosures and REO properties is not a good sign for the real estate market.  As discussed above there are no real positives when this happens for current home owners.  If you are considering selling a house in the near future you may want to do it before prices and days on market are affected by this.  If you wait too long you might need to sell for less than you wanted and might have to take an even bigger discount to avoid it sitting on the market for an extended period of time.

If you want to sell your house fast and easy schedule a consultation with us today.

 

 

All data for this article from Banker & Tradesman via The Warren Group: October Data , November Data

(Image Credit: Foreclosure Vs. Short Sale via Boston.com Article)

 

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