Don’t Believe Everything You Hear in the News: Foreclosure Reports Can Be Misleading

by Karen Goodman on January 24, 2008

j0407157 Dont Believe Everything You Hear in the News: Foreclosure Reports Can Be Misleading Every time you turn on the news, the media seems to be talking about the high rate of foreclosures and how the housing market is horrible.

**What is the difference between a ‘foreclosure filing’ and a ‘bank owned property’?**

Just about every news report cites the same source for their data, RealtyTrac. However, the way that RealtyTrac presents their data can be misleading.

RealtyTrac reports ‘Foreclosure Filings’.

There is a big difference between a foreclosure filing and a true foreclosure, or a house that has been taken back by the bank (REO property). There can be multiple filings per property which tends to inflate the numbers reported to the public.

What is the truth about the foreclosure rate?

In 2007, Missouri had 7,583 REO properties vs 21,911 ‘foreclosure filings’. So only 34.6% of the ‘foreclosures’ reported by the news are actually properties that have been taken back by a bank.

The foreclosure rates for Illinois were even lower with 6,145 REO properties but a massive 63,006 ‘foreclosure filings’ (9.75%).

Nationally, the US had 255,129 REO properties and 1,546,020 ‘foreclosure filings’ (16.5%).

***The RealtyTrac numbers reported reflect data through 9/1/07 since their 4th quarter data has not yet been released.***

How many people are really losing their homes?

If you take the REO figures and compare that to 2005 census data for the number of households in the US, the picture isn’t so scary.

Missouri: 0.84% of households have been reported as a ‘foreclosure filing’ but only 0.29% of households are REO properties
US: 1.24% of households have been reported as a ‘foreclosure filing’ but only 0.20% of households are REO properties

For the 3rd quarter of 2007, 74% of the ‘foreclosure filings’ occurred in 10 states. So 10 states are having a big foreclosure crisis, and the remaining 40 states (including Missouri and Illinois!) are not as dramatic.

AND, many of the properties being foreclosed on are owned by investors or were owned by homeowners that took money out of their homes during the ARM refinancing craze a few years ago.

Are there families losing their homes? Yes
Is it a tragedy? Yes
Are the foreclosure rates really higher than they have been in the past in our local market? Yes, but not as bad as the media paints the picture!

The reality is that the housing market IS slow, mostly because buyers are afraid to buy after listening to the news. The result of buyers sitting on the sidelines is an oversupply of inventory. Basic supply and demand principles then kick in. When there is a lot to choose from…for any product…prices come down. Sellers are forced to drop their prices if they want their home to be the one that sells soon rather than the one that sells in 6 or 8 months.

For more information on foreclosure filings in Missouri, click here.