Thursday, March 25, 2010

LOCAL NEWS: A recovery threat in the shadows

Distressed properties could pull down prices.

Massachusetts could face a second wave of foreclosures as tens of thousands of distressed and bank-owned properties hit the market, slowing the state’s nascent housing recovery, officials from the Massachusetts Housing Partnership said yesterday.

Clark Ziegler, executive director of the state’s quasi-public, affordable housing agency, said there are about 64,000 distressed properties in so-called shadow inventory poised to go on the market because they have delinquent mortgages, are in foreclosure, or already are owned by a lender.

He said the number — about equal to all the single-family homes and condominiums sold last year in Massachusetts — could dampen the recent trends toward increases in prices and sales. The report is not warning of the “next big crisis,’’ Ziegler said, but is a reminder that the housing market still a long way from recovery. Not all shadow inventory homes will be put up for sale, he said, and those that are will gradually stream into the market, partially muting their impact.

“The reality is that there are more [foreclosed properties] to come, and it will stretch out how long it takes the recovery to play out,’’ Ziegler said. “It is a cautionary tale.’’

A housing agency study, released this month, was intended to address concerns among real estate specialists that a shadow inventory nationwide could derail a housing rebound. In December, mortgage researcher First American CoreLogic reported that the inventory of homes for sale in the United States rose to 1.7 million units as of September 2009, up from 1.1 million in the same month the year before. The Massachusetts Housing Partnership study focused solely on the state, which has fared better than many regions during the housing decline that started locally in 2005.

The study found there were at least 33,322 Massachusetts homes with mortgages 90 days or more overdue, 4,077 properties already owned by lenders, and 26,545 in foreclosure. Not all of the delinquent homes will be foreclosed upon, as homeowners’ finances improve or they receive loan modifications. Still, many will go into foreclosure and then gradually come back on to the market, said Tim Davis, the research consultant who carried out the study.

The foreclosure process is taking longer in Massachusetts because of loan modification attempts, service backups, and a local Land Court decision last year that invalidated foreclosures where documents had not been properly filed. The slower pace of legal proceedings probably has helped limit price declines, the study said, by not overwhelming the market with distressed homes.

“Instead, the market will likely be more ‘bowl’ shaped, with a slow decline in prices, but also a slow increase in prices,’’ the study said.

Indeed, Alan Clayton-Matthews, a professor of public policy at Northeastern University, doesn’t believe shadow inventory will have a big impact locally. He said shadow inventory has been an issue for a while.

“If this were a problem, it would derail the recovery in housing. We would have seen its effects by now,’’ Clayton-Matthews said.

But Barry Bluestone, dean of the School of Public Policy and Urban Affairs at Northeastern University, said he was alarmed to see a recent surge in auctions of foreclosed homes, which can bring down prices especially in hard-hit towns.

The number of published auction announcements tracked by Warren Group, a private company that tracks real estate, jumped in January by 81.5 percent to 2,385 compared with 1,314 in the same month in 2009.

“The number of auctions is off the chart,’’ Bluestone said. “It can have the effect of continuing to depress prices just as they are continuing to come back.’’

By Jenifer B. McKim Boston Globe March 11, 2010

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