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2013-03-19 15:19:55
Why Foreclosure Uptick Is Good News For Housing


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A recent pickup in foreclosure activity could ease tight existing home inventory, which has collapsed to a 13-year low.

February foreclosure filings — including default notices, auctions and repossessions — rose 2% from the prior month, but are down 25% from a year ago, RealtyTrac said Thursday. New filings climbed 10% from January.

Gains were focused in states with more restrictive foreclosure rules, which kept the numbers low earlier but are now resulting in spikes as lengthier proceedings run their course.

While new foreclosure filings are also 25% below year-earlier levels nationally, they soared 334% in Nevada, 319% in Maryland, 172% in Washington and 139% in New York. They were among the 16 states that saw yearly increases; 32 states saw monthly gains.

'Foreclosure starts have been steadily building in those states over the last several months and likely will end up as bank repossessions or short sales later this year,' Daren Blomquist, vice president at RealtyTrac, said.

13-Year Inventory Low

Putting those homes back on the market would soften a worsening inventory crunch.

The number of existing homes for sale fell to 1.74 million in January, down 57% from the peak in 2007 and the lowest level since December 1999, according to the National Association of Realtors.

Demand should continue to rise with jobless claims falling to a five-year low.

Tight supply has boosted home values, which is encouraging some homeowners to put properties on sale again.

But other factors are preventing more supply from becoming available, such as tight lending standards, underwater borrowers, preference to rent and desire to see more appreciation.

Shrinking inventory is one reason analysts at Sterne Agee began coverage on homebuilders, who face less competition from sellers of existing homes.

Since August 2011, IBD's Builder-Residential/Commercial industry group has nearly doubled in value, led by homebuilders such as D.R. Horton (DHI), Lennar (LEN), Ryland (RYL) and PulteGroup (PHM).

Builders could be poised for a long run of market-topping profits, analyst Jay McCanless said.

'If the current cycle mirrors the last cycle, we believe the average stock in our homebuilder universe could have another 11 to 12 quarters of positive earnings surprises ahead,' he wrote in a note.

D.R. Horton received a 'buy' rating, as the lack of competing inventory lifts its pricing power. Meritage Homes (MTH) also can raise prices and looks to benefit from lower-cost land in California and Texas. It and Ryland got buy ratings too.

While Lennar's gross margins lead the industry, McCanless said its shares are fairly priced, earning it a neutral rating.

Meanwhile, RealtyTrac said bank repossessions in February fell 11% from January and 29% from a year ago, hitting the lowest level since September 2007.

Last year's 'robo-signing' foreclosure claims settlement encouraged lenders to allow more short sales. Banks have found they can recoup more money via short sales vs. repossessions. A vacant, repossessed home also entails more maintenance costs.

But even if more short sales loosen up inventory, prospective owners are competing against investors looking for bargain properties that will generate hefty rental income.

In that case, house hunters may find more options in the slowly rising inventory of new single-family homes.



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