By JAMES R. HAGERTY
Banks have fewer foreclosed homes to sell than previously believed, but those holdings are likely to rise gradually over the next couple of years, a new study by Barclays Capital says.
The investment bank's latest calculations support the view that the U.S. housing market is stabilizing but that a major recovery isn't imminent and there still are risks of falling prices.
Barclays estimates banks and mortgage investors including Fannie Mae and Freddie Mac owned 480,000 homes at the end of February. Barclays has acquired more data on mortgages and refined its methods for analyzing foreclosure trends. Under the bank's previous methods, the estimate for February would have been more than 600,000.
Barclays expects the inventory generally to rise over the next 20 months, peaking at 536,000 in January 2012, and then decline gradually.
Estimating the inventory of foreclosed homes remains tricky because thousands of banks and others that own the properties disclose those holdings in varying ways, if at all. RealtyTrac Inc., another data provider and one of the few other firms that regularly make such calculations, estimates banks and mortgage investors own 758,000 foreclosed homes. To get a sense of how many more households will lose their homes to foreclosures or related actions, Barclays tallies what it calls a shadow inventory, consisting of homeowners 90 days or more overdue on mortgage payments or already in the foreclosure process. At the end of February, 4.6 million households were in that category.
Barclays expects 1.6 million "distressed sales" of homes—mainly foreclosures or sales of homes for less than the mortgage balance due—both this year and in 2011, then a slight decline to 1.5 million in 2012. Last year, Barclays estimates, such sales totaled 1.5 million. About 30% of all home sales this year and next will be foreclosure-related, forecasts Robert Tayon, a mortgage analyst at Barclays, who says that would be only about 6% in a normal housing market.
Barclays expects U.S. home prices on average will fall another 3% to 5% over the next couple of years, adding to a decline of about 30% already recorded since 2006. That forecast assumes a gradual decrease in the unemployment rate, to 8% within the next two years, from 9.7% in March. The home-price picture would worsen if job growth sputters or banks "push homes through the foreclosure pipeline faster than expected," Mr. Tayon says.
Efforts to avert foreclosures by offering many borrowers lower payments have slowed the flow of homes into bank ownership. In some parts of the country—such as the Las Vegas area and Orange County, Calif.—that has left bargain-hunters frustrated by what they see as a shortage of bank-owned properties in attractive neighborhoods. In the Las Vegas area, foreclosed homes accounted for 56% of sales in March, down from 73% a year earlier, according to MDA DataQuick
Order Reprints