Fast-Falling Foreclosure Rates Are Pushing Up Your Home’s Value

February 16, 2017 - 4 min read

Distressed Homes Drag Down The Neighborhood Home Prices

Homeowners don’t like to see abandoned houses on their block. Zombie foreclosures—vacated homes that have yet to complete the foreclosure process—can be more than an eyesore. They may also attract crime and lower surrounding home prices.

If you’re shopping for a mortgage loan and a home, there’s good news on this front. Foreclosure rates are falling fast.

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What New Data Reveal

Fresh numbers from ATTOM Data Solutions show that foreclosure activity nationally plunged to a 10-year low in 2016. Looking closer, the U.S. foreclosure rate dropped by 30 percent last year.

That’s the most improvement of any year on record, according to Black Knight Financial Services. December 2016’s 59,700 foreclosure starts marked an amazing 24 percent decrease from the same period a year earlier.

Foreclosure filings surpassed 2.8 million in 2010. Last year, they tallied 933,045. That’s a sign that the housing market is in much better shape today than a few years ago.

Why Foreclosures Are Down

Daren Blomquist, senior vice president for ATTOM Data Solutions, says foreclosure filings are down for two reasons.

First, since the last housing bubble, there are fewer “legacy” foreclosures—meaning homes in the foreclosure process with loans originated between 2004 and 2008.

“Most legacy foreclosures have either been already foreclosed on or resolved in some other way, such as refinancing, modification or short sale,” says Blomquist.

Second, “loans originated over the past seven years are holding up well, with default rates below historically normal levels,” he adds.

How The Housing Market Benefits

Lower foreclosure rates are a positive for real estate, both nationally and in local markets.

“It’s good news that the market in most areas is not dealing with the uncertainty of a high share of distressed properties competing with regular sales,” notes Blomquist.

“This leads to a healthier and normal real estate ecosystem. Home prices are steadily rising over the long-term, and home builders are more confident to create extra supply without fear of having to compete with foreclosures.”

Ultimately, that should help restore balance to the supply-demand equation, he says.

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How You Benefit

A home isn’t just a roof over your head. It can also be a wise investment that repays you in the form of equity earned over time and likely higher value when it’s time to sell.

But foreclosure homes on your block can decrease the value of this investment.

That’s because higher foreclosure rates negatively affect home prices, research shows. A report by MIT and Harvard revealed that foreclosures can drag down prices of other houses for sale within a quarter mile.

Foreclosures may increase property tax rates in your area, too. In 2014, RealtyTrac estimated that over $400 million in property tax revenue was likely delinquent across America due to zombie foreclosures.

In addition, lower foreclosure rates may lead to lower crime in the area. That’s what’s suggested in a 2015 report submitted to the U.S. Department of Justice and a 2010 study by the FDIC.

The latter estimates that a one percentage point increase in foreclosure rates increases burglary rates by over 10 percent.

The Flip Side Of Falling Foreclosures

Of course, the not-so-good news is that fewer foreclosures means scarcer chances to score a low price on a distressed property. The MIT/Harvard study concluded that a foreclosure decreases prices on those homes by 27 percent, on average.

Home prices continue to rise nationally. As a result, many buyers on a budget look to bargains. A lower number of foreclosure, short sale, and REO (bank-owned) properties on the market reduces prospects for scoring a discounted deal.

Blomquist says decreased foreclosure rates could further signify restricted access to credit. And these credit restrictions could limit your ability to own a home.

“For the housing market to continue to grow, we may need to see slightly higher foreclosure rates, as crazy as that sounds,” Blomquist says.

“That would indicate credit standards are loosening a bit. And that would open up the homeownership market to a wider pool of buyers who can spur continued growth in the real estate market.”

How To Move Forward

Regardless of the state of foreclosures, now remains an ideal time to reel in a great deal on a mortgage and home purchase. First, however, plan to do your homework.

“Do what you can to save up for a more sizeable down payment. This will help with the loan rate and terms and also result in a lower monthly house payment,” says Blomquist.

That may mean some short-term sacrifices, “such as living with parents, not getting into debt on depreciating assets like cars, and cutting back on other disposable income spending,” he adds.

What Are Today’s Mortgage Rates?

Today’s mortgage rates depend on the product you choose and the strength of your application. Current rates mostly range between three and 4.5 percent for ARM and fixed mortgages.

Time to make a move? Let us find the right mortgage for you

Erik J. Martin
Authored By: Erik J. Martin
The Mortgage Reports contributor
Erik J. Martin has written on real estate, business, tech and other topics for Reader's Digest, AARP The Magazine, and The Chicago Tribune.