Foreclosure processes take longer and even slow the market down in its recovery process in states that require judicial foreclosures, according to Pro Teck.
Pro Teck's monthly Home Value Forecast ranks the single-family home markets in the top 200 core based statistical areas demonstrates the road blocks faced by those in judicial states. While only 22 states use judicial foreclosure, Pro Teck found that seven of 10 CBSAs with the largest percentage of foreclosures this month, and 19 of the largest 25, are judicial foreclosure states.
“Today, the lag in recovery can still be seen in states with judicial foreclosure laws, where the foreclosure process can take up to two years,” said Tom O’Grady, CEO of Pro Teck Valuation Services.
Pro Teck compared the cities of Cleveland, which does judicial foreclosures, to Phoenix, which does not, to show how they rank. Cleveland is number 21 on the list, whereas Phoenix is number 174. Here's a closer look at each community:
In May 2014, Cleveland was near the bottom of Pro Teck’s 200 markets. The foreclosure sales were at 30%, which means one foreclosure sale for every three market sales. In a healthy market, foreclosure sales as a percentage of market sales would be around 5%, or one foreclosure sale for every 20 market sales.
Today, Cleveland’s foreclosure sales still make up 17.45% of market sales, about half of what it was a year and eight months ago. Their months of remaining inventory number has also seen a reduction, from 8.39 to 6.26 months.
“Cleveland’s judicial foreclosure process has drawn out its recovery versus Phoenix, and prices have not rebounded to anywhere near pre-crash levels,” O’Grady said. “With a large number of 2006 HELOCs coming due, many could find themselves in a difficult situation when their loan is called.”
In 2012, Phoenix’s housing prices rebounded strongly. During this time, Phoenix quickly worked through its foreclosure inventory, inspiring confidence in the housing market’s trajectory. In May 2014, Pro Teck commented on how Phoenix was returning to market fundamentals, with a balanced market and foreclosures trending back towards historic norms.
Today, Phoenix has recovered completely and has a strong and stable real estate market, with 5% foreclose as a percent of sale and 4.51 MRI, both signs of a strong market.
“This strength can be seen in pricing trends. Where once the average home had lost more than 50% of its value, are now back to 85% of pre-crash highs,” said O’Grady. “We believe that Phoenix will make up the majority of the 15% gap within the next two years.”