Housing Market Shrugs Off New Foreclosures

NEW YORK ( TheStreet) -- Foreclosure activity increased 2% in May from the 75-month low reported in April, driven by a jump in bank repossessions, according to the latest report from RealtyTrac.

Foreclosure filings -- default notices, scheduled auctions and bank repossessions -- were reported on 148,054 properties. In other words, one in 885 properties reported a foreclosure filing during the month.

That was still 28% below figures reported a year earlier.

Lenders have over the past year shifted away from costly and lengthy foreclosures towards short sales and other alternatives such as loan modifications. Still, foreclosures aren't going away, given the large pipeline of seriously delinquent loans, not all of which can be cured.

"Foreclosure activity continued to bounce back in some markets where it may have appeared the foreclosure problem had been knocked out by an aggressive combination of foreclosure prevention efforts over the past two years," said Daren Blomquist, vice president at RealtyTrac, in a statement. "Places like Nevada, where foreclosure starts increased to a 20-month high, and Maryland, where overall foreclosure activity increased to a 33-month high. Still, the emerging housing recovery has strengthened most local markets enough to quickly shake off a few more blows from these nagging foreclosures."

One reason housing analysts are no longer troubled by periodic spikes in foreclosure activity is the market is on a much more solid footing.

An acute shortage of homes for sale has driven prices higher over the last few months but has capped the number of existing home sale transactions. So in markets starved for inventory, foreclosures actually end up providing relief, unshackling pent-up demand and sparking more home sales.

Consequently, new foreclosures do not have the depressing effect on home prices that was once feared.

Periodic spikes in foreclosure activity are likely as lenders adjust to new regulations governing servicing of problem loans and work their way through the backlog.

But so long as the overall trend is down, the upward trend in home prices is unlikely to be affected, everything else being equal.

-- Written by Shanthi Bharatwaj New York.

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

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