July 12, 2012 at 8:28 AM ET
Many experts, from Warren Buffett to the Wall Street Journal, have been declaring lately an end to the longest and deepest housing bust since the Great Depression.
There's a flea in that balm, however: foreclosures look set to begin rising again.
Data released Thursday by RealtyTrac, a firm that lists foreclosures, showed that foreclosures could start climbing by early next year, setting up conditions that could undermine the housing outlook. RealtyTrac said U.S. foreclosure starts rose year-over-year in June for the second consecutive month, as banks continued to clear their backlog of inventory after a nationwide mortgage abuse settlement.
Major banks across the country kept moving on distressed properties following a $25 billion mortgage abuse settlement this April, causing foreclosure starts to rise in the second quarter for the first time since the last quarter of 2009.
Overall foreclosure activity, which includes default notices, scheduled auctions and bank repossessions, declined for the 21st straight month, affecting 197,834 properties in June. That was a 3.96 percent decrease from May and an 11.18 decrease from June 2011.
The settlement between major banks and state attorneys general, formally approved in April, had been expected to jump-start foreclosure proceedings that had stalled over concerns about liability.
New foreclosure starts were filed on 104,294 properties in June, an increase of 4 percent from June 2011 but a 4 percent decrease from May, when they jumped to 109,051 on the heels of the settlement.
California's year-over-year foreclosure starts rose by 18 percent in June, giving it the nation's highest foreclosure rate for the first time since RealtyTrac began its monthly reporting in January 2005.
The midyear report showed 1,045,801 total properties with foreclosure filings for the first half of 2012, an increase of 2 percent from the previous six months, but a decrease of 11 percent from the first half of 2011.
The average length of the foreclosure process rose to 378 days in the second quarter, up from 370 in the first quarter and the highest quarterly average since the first quarter of 2007.
RealtyTrac collects data from more than 2,200 counties nationwide, which account for more than 90 percent of the U.S. population.
The increase in foreclosure starts sets the stage for a potential increase in homes sold at a discount via short sale, when the lender agrees to accept less than what is owed on the seller's mortgage. Others could end up taken back by banks and placed on the market also at a sharp discount.
Either way, short of homeowners obtaining loan modifications or otherwise arranging to exit the foreclosure process, many of these properties could end up adding to the inventory of foreclosed homes on the market, dragging down the values of nearby homes.
Those homes may not hit the market for many months, however.
In the second quarter, it took an average of 378 days for a U.S. home to complete the foreclosure process, or the point when a bank takes over the property, RealtyTrac said. That's up from an average of 370 days in the first three months of the year and a record going back to the first quarter of 2007, the firm said.
In New York, it took an average of 1,001 days for the foreclosure process to run its course in the second quarter, down from 1,056 days in the first quarter.
Of the homes that entered the foreclosure process in June, those that end up as bank-owned properties would likely hit the market a year from now, Blomquist said.
"However, if they take the short sale route, it may be sooner," he said.
Short sales take, on average, 319 days to sell from the time they enter foreclosure.
A stronger housing market could mitigate the impact of future foreclosures on home prices, and home sales are expected to end up ahead of last year. But many economists still say the market is years away from a full recovery.
There are some 3 million U.S. homes behind on their mortgages, according to the Mortgage Bankers Association.
An additional 629,000 homes were on banks' books as of June, but not yet sold. That translates into a 15-month supply, at the current pace of sales, according to RealtyTrac.
And nearly 13 million home loans are underwater, or owing more than the house is worth. Those properties could be at higher risk for entering the foreclosure process.
Even so, the backlog in foreclosures that banks are still dealing with has slowed the pace of home repossessions.
The Associated Press and Reuters contributed to this report.