A recent study by Barclays Capital says that U.S. lenders are holding fewer foreclosed homes than previously assessed by the research firm. Some are viewing the revised estimate as a testament to the stability that istaking hold in the housing market, but Barclays warns that the industry should expect REO inventories to grow – albeit gradually – over the next couple of years, as banks push more properties through the pipeline and foreclosure alternatives are exhausted.
The firm’s analysts estimate that as of the end of February, 480,000 repossessed homes were held by U.S. lenders, mortgage investors, and the GSEs. As the Wall Street Journal explained, Barclays has acquired more data on mortgages and refined its methods for analyzing foreclosure trends. Under the company’s previous methods, the REO inventory estimate would have come in above 600,000.
The analysts at Barclays say the number of bank-owned properties will continue to rise over the next year and a half, hitting a peak in January 2012 of 536,000.
The research firm says it’s loss mitigation efforts like the Treasury’s Home Affordable Modification Program (HAMP) that are preventing another debilitating flood of foreclosures from hitting the market. Although HAMP and its private sector counterparts are likely simply delaying the inevitable and “prolonging the pain,” as Barclays analysts put it, such programs support a better outcome for the industry than one big market-shattering shock, they say.
Barclays says it will likely take years to work through the current glut of foreclosures. The company calls the foreclosure pipeline “alarmingly large,” with about 5.5 million mortgages either seriously delinquent or already in some stage of foreclosure.
Barclays is expecting to see 1.6 million distressed home sales this year, meaning foreclosure sales or short sales transacted to escape foreclosure. The firm projects another 1.6 million distressed sales in 2011, before the number begins to taper off to 1.5 million in 2012.
The company’s 2010 and 2011 estimates of foreclosure-related sales equate to about 30 percent of all home sales projected for those calendar years. In a “normal” housing market, Barclays analysts say such distressed sales would account for only about 6 percent of total home sales.