Foreclosure sales dropped dramatically in three states last month, suggesting some state legislation is stalling the natural cycle of the market, ForeclosureRadar said Thursday.
The new Homeowner Bill of Rights in California is expected to have a huge impact on housing supply in the state, the research firm said.
The report said foreclosure sales fell 13.4% in California in June from May and 48.8% from year-ago levels.
Foreclosure sales plummeted 18.5% in Arizona over the previous month and 42.1% from June 2011.
Meanwhile, Nevada foreclosure sales dropped 14.6% month-to-month and 72.1% from year-ago levels.
Foreclosures riddled these markets after the housing bust, but now ForeclosureRadar is worried about legislation that could stall the overall market recovery.
The report covers Arizona, California, Nevada, Oregon and Washington.
"California Gov. Jerry Brown signed into law the Homeowner Bill of Rights, an anti-foreclosure package which naively thinks that slowing foreclosures will benefit homeowners and the economy by leaving those owners stuck in their prison of debt," said Sean O'Toole, founder and CEO of ForeclosureRadar.
"We've long said negative equity, not foreclosures, (is) the problem," O'Toole said. "Fortunately this bill was watered down significantly from its original form, so we don't expect it will have the same impact that we've seen from more aggressive legislation in Nevada."
O'Toole said that foreclosures in California "have already plummeted, and that the real housing crisis in now a lack of homes available for sale."
Home sales in the Western markets remain generally low and stalls in foreclosure sales will further reduce inventory levels, ForeclosureRadar said.
O'Toole said banks in California are now taking 272 days to resell properties at auction. With this in mind, he says real estate agents, investors and homebuyers will discover reduced inventory levels next year.