May 17 (Bloomberg) -- Foreclosure filings in the U.S. fell to a five-year low last month as lenders sought to avoid seizing property and a housing recovery showed signs of taking hold.
The number of default, auction and seizure notices sent to homeowners in April totaled 188,780, down 14 percent from a year earlier and 5 percent from the previous month, according to RealtyTrac Inc. It was the lowest tally since July 2007, before the onset of the biggest housing crash in seven decades, the Irvine, California-based data seller said today in a report.
The “gradually rising foreclosure tide” forecast by RealtyTrac after a February settlement by the nation’s biggest mortgage servicers over faulty practices has yet to materialize, limiting the number of properties on the market and propping up prices. Banks are finding alternatives to home seizures, selling distressed property for less than the amount owed on the mortgage, known as a short sale, or modifying loans for borrowers struggling to keep up payments while an improving economy is helping to ease defaults.
“Things are getting better and the number of vulnerable households is going down,” Paul Willen, senior economist at the Federal Reserve Bank of Boston, said in a telephone interview. “The pool of borrowers is much more stable than it was two or three years ago.”
The U.S. mortgage delinquency rate fell in the first quarter to 7.4 percent, the lowest level in more than three years, the Mortgage Bankers Association said yesterday. The rate peaked at 10.1 percent in the first quarter of 2010 and was last lower in the third quarter of 2008, when it was 6.99 percent.
Home prices in the U.S. rose 0.6 percent in March from the previous month, the first sequential advance since July and the third straight month-over-month gain excluding short sales and foreclosure sales, said mortgage data company CoreLogic Inc. Prices fell 0.6 percent from a year earlier, according to the Santa Ana, California-based firm’s index of home values.
Short sales have been the preferred means for lenders to dispose of distressed real estate in California, where they totaled 11,397 in January, compared with 8,821 foreclosure deals in that state, according to RealtyTrac. The tally in Arizona was 3,217 short sales to 2,776 foreclosures, while in Florida it was 5,014 to 3,959.
There were 35,816 short sales in the U.S. in January, compared with 38,443 foreclosure deals, RealtyTrac said.
The national home-price data belies improvements in many markets where “tighter inventories are beginning to lift home prices,” CoreLogic Chief Executive Officer Anand Nallathambi said in a May 8 statement.
A drop in properties for sale may also be reducing foreclosure deals, and helping to put a floor under prices. Home listings in the U.S. fell 22 percent to 2.37 million in March from a year earlier, a 6.3-month supply at the current sales pace that’s considered a balanced market, National Association of Realtors data show.
In the Miami area, March listings declined 34 percent from a year earlier and prices rose for the fourth straight month, with condos jumping 46 percent and single-family homes gaining 13 percent, according to the Miami Association of Realtors.
The $25 billion settlement over foreclosure practices between the five largest mortgage servicers, including Bank of America Corp. and JPMorgan Chase & Co., and attorneys general from 49 states has made servicers leery of incurring further legal action, said Daren Blomquist, a RealtyTrac spokesman.
The share of home loans in the foreclosure process increased to 4.39 percent in the first quarter from 4.38 percent in the previous three months, indicating that lenders are limiting repossessions, according to the Mortgage Bankers Association data released yesterday.
“Lenders are proceeding with caution and want to avoid risk,” Blomquist said. “They’re not in a rush to foreclose right away.”
The housing market may see “further gradual improvement” as homeowners take advantage of current federal aid plans and new policies are introduced, Elizabeth Duke, a governor of the Federal Reserve, said May 15 in Washington. In markets such as Miami and Phoenix, where foreclosure rates have been among the highest in the U.S., price declines have halted, even with a “steady supply” of new problem loans, she said.
“This calls into question the notion that housing prices cannot stabilize until the foreclosure pipeline is worked off,” Duke said in prepared remarks at a National Association of Realtors meeting. “Mortgages that were originated using the tight underwriting that has prevailed since 2008 would presumably have lower delinquency rates, and recent vintage loans now make up an increasing share of outstanding mortgages.”
Affordability for homebuyers increased to the highest on record in the first quarter, based on the combination of low mortgage rates, low prices and improved incomes measured in a Realtors index. A family earning a median income of about $61,000 could afford to buy a $325,500 residence, more than double the $158,100 median cost of an existing single-family home in the U.S., the Chicago-based trade group said May 15.
Greater purchasing power by consumers has risen along with builder confidence, which increased every month this year and reached a five-year high in May, according to Barry Rutenberg, chairman of the National Association of Home Builders and a builder from Gainesville, Florida. That’s a harbinger of new jobs for the construction industry, he said.
“Housing demand is slowly beginning to recover,” according to Joseph LaVorgna, chief U.S. economist at Deutsche Bank Securities Inc. in New York. “Banks are showing increasing willingness to lend to consumers, which should bode positively for the mortgage market. In turn, this would help shift the housing recovery into a higher gear.”
Housing starts increased by 2.6 percent to an annual pace of 717,000 in April, beating economists’ estimates, the Commerce Department data reported yesterday.
Foreclosure filings fell year-over-year in U.S. states hard-hit by the housing crisis, and where steady investor purchases have contributed to price rebounds or stabilization, according to RealtyTrac. Short sales likely outnumbered sales of bank-owned properties in the first quarter in California, Arizona and 10 other states, the company said.
Among the 20 largest metropolitan areas, filings in April fell 54 percent in Seattle; 44 percent in Phoenix; 34 percent in San Francisco; 30 percent in Riverside-San Bernardino, California; and 28 percent in Los Angeles.
Filings plunged year-over-year in the 24 states where lenders record actions at the county level, without court supervision, while they rose in the 26 so-called judicial states that had “artificially low” filings during the national legal probe of lender practices, Blomquist said.
Nonjudicial states and the District of Columbia saw filings drop 29 percent from April 2011, with declines in Arizona, California and Nevada accounting for much of the decrease, and judicial states showing a 15 percent increase, RealtyTrac said.