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Surge in Foreclosures Could Threaten Housing Rebound

"At a high level, the U.S. foreclosure inferno has been effectively contained and should be reduced to a slow burn in the next two years," says Daren Blomquist, vice president at RealtyTrac. "But dangerous foreclosure flare-ups are still popping up in states where foreclosures have been delayed by a lengthy court process or by new legislation making it more difficult to foreclose outside of the court system. Foreclosure starts have been steadily building in those states over the last several months and likely will end up as bank repossessions or short sales later this year."

Blomquist points to Oregon's neighbor, Washington, along with other states as examples of heightened foreclosure activity

"These new foreclosure hotspots include states like Washington, where seven straight months of rising foreclosure activity pushed the state's foreclosure rate to fifth-highest nationwide-- the highest it's ever been in our report-- and Maryland, where eight straight months of rising foreclosure activity placed the state's foreclosure rate among the top 10 nationwide for the first time since July 2010," Blomquist adds.

All told, U.S. foreclosure starts were up in 32 states in February, with some states showing alarmingly high rates. Look at these states' foreclosure rate growth in February:

Nevada +334%
Maryland +319%
Washington +172%
New York +139%
New Jersey +70%

On the plus side, the more foreclosures sold off, the more surrounding homes are worth. (Foreclosed homes usually drag down the prices of nearby homes.)

But an increase in foreclosures also signals that the U.S. housing market is not out of the woods yet. Until the inventory of foreclosed homes is largely sold off, there can't be significant recovery in the nation's residential housing market.

From what RealtyTrac is reporting, that so-called recovery isn't as strong as one might think.

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