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TheStreet Open House

Foreclosure Crisis Is in Last Inning

NEW YORK (TheStreet) -- Will 2014 be the year when we finally can move on from the foreclosure crisis?

According to Daren Blomquist, vice president of RealtyTrac, there is strong evidence to suggest that foreclosures are no longer a threat to the housing recovery.

The latest foreclosure data suggested that the U.S. housing market is heading toward a more normal market, at least where distressed properties are concerned.

U.S foreclosure activity, which includes default notices, scheduled auctions and bank repossessions, declined 15% in November from the previous month, the biggest monthly drop since November 2010 when foreclosure activity plummeted following revelations of the robo-signing scandal.

Year over year, foreclosure activity was down 37%.

Foreclosure starts, referring to properties on which foreclosure action was initiated, declined 10% from a month ago to 52,826. That is the lowest level since December 2005.

"While some of the decrease in November can be attributed to seasonality, the depth and breadth of the decrease provides strong evidence that we are entering the ninth inning of this foreclosure crisis with the outcome all but guaranteed," said Blomquist in a press release. "While foreclosures will likely continue to stage a weak rally in certain markets next year as the last of the distress left over from the Great Recession is dealt with, it is highly unlikely that there will be a foreclosure comeback that poses any major threat to the solid housing recovery that has now taken hold."

The unprecedented level of foreclosures in the wake of the housing bust drove home prices lower by more than 30% from their peak levels. In the hardest -hit areas, the decline was even steeper.

After hitting a peak in 2010, foreclosure activity has been on the decline for the past three years as banks pursued other alternatives such as loan modifications and short sales to resolve problem loans.

This was in part a response to government and regulatory pressure. But prolonged foreclosure timelines, onerous procedures and depressed home prices also made foreclosures the least attractive alternative.

Meanwhile, investor demand for foreclosed homes in recent years also has helped prop up the market. Investors, big and small, have aggressively bid for foreclosed homes. Some have flipped them for a profit but many professional investors have converted them into single-family rentals, helping to reduce the overhang of distressed homes in the market.

Some states, notably Florida, continue to suffer high rates of foreclosure. In judicial foreclosure states such as Florida, New York, New Jersey and Connecticut, the timeline to complete a foreclosure on a property stretches into years, which has created a backlog of foreclosure cases. Foreclosure activity tends to spike in these states month to month as problem loans work through the pipeline. But overall the trend is heading lower.

Additionally, mortgage delinquency rates are also falling and loans made post-crisis are of such pristine quality that the new problem loan rate is also very low.

Still, while foreclosure activity is moving toward normal, there are other indicators in housing that remain depressed. Construction starts and household formation are still well below normal.

In addition, in some regions housing affordability is once again becoming an issue, as incomes remain flat and mortgage rates rise. And most borrowers still have trouble getting a mortgage.

So not all is well with the housing market. But it is getting better.

-- Written by Shanthi Bharatwaj in New York.

Disclosure: TheStreet's editorial policy prohibits staff editors and reporters from holding positions in any individual stocks.

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