Foreclosures Establishing an Elevated Flatline

It’s time once again to expand on our preview of foreclosure activity with a more detailed look at June’s stats in King, Snohomish, and Pierce counties. First up, the Notice of Trustee Sale summary:

June 2011
King: 924 NTS, down 33% YOY
Snohomish: 463 NTS, down 38% YOY
Pierce: 545 NTS, down 33% YOY

Foreclosure notices are still falling solidly across all three counties from last year’s levels. Of course, even a 30% drop from a record high level is still a pretty high level of foreclosures.

Here’s your interactive Tableau dashboard updated with the latest foreclosure data:

The percentage of households in the chart above is determined using OFM population estimates and household sizes from the 2000 Census. King County came in at 1 NTS per 892 households, Snohomish County had 1 NTS per 588 households, and Pierce had 1 NTS for every 587 households (higher is better).

According to foreclosure tracking company RealtyTrac, Washington’s statewide foreclosure rate for June of one foreclosure for every 126 housing units was 15th hightest among the 50 states and the District of Columbia. Note that RealtyTrac’s definition of “in foreclosure” is much broader than what we are using, and includes Notice of Default, Lis Pendens, Notice of Trustee Sale, and Real Estate Owned.

Hit the jump for a larger version of the chart that shows the percentage of households in each county receiving a foreclosure notice each month:

Note: The graphs above are derived from monthly Notice of Trustee Sale counts gathered at King, Snohomish, and Pierce County records. For a longer-term picture of King County foreclosures back to 1979, hit this chart and drag the date slider to its full range. For the full legal definition of what a Notice of Trustee Sale is and how it fits into the foreclosure process, check out RCW 61.24.040. The short version is that it is the notice sent to delinquent borrowers that their home will be repossessed in 90 days.

  

About The Tim

Tim Ellis is the founder of Seattle Bubble. His background in engineering and computer / internet technology, a fondness of data-based analysis of problems, and an addiction to spreadsheets all influence his perspective on the Seattle-area real estate market.

30 comments:

  1. 1

    As I just mentioned responding to Pegasus in another thread, these numbers being slightly down could be partial result of Washington’s Foreclosure Fairness Act. Unlike the legislation a couple of years ago, this one is a bit too complicated to fully predict it’s effect.

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  2. 2
    ray pepper says:

    RE: Kary L. Krismer @ 1

    Agreed..Of the many I know in foreclosure it is very apparent they all seem to be in “limbo.”

    When asking about their properties the owners have no idea what state of foreclosure they are in and most have gotten their Notice of Default yet no follow-up………

    But, make no mistake about it they will be coming:
    http://www.nytimes.com/2011/07/12/business/foreclosures-by-bank-of-america-expected-to-rise.html?pagewanted=all

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  3. 3

    […] Seattle Bubble describes the unusual foreclosure picture best: “Foreclosures Establishing an Elevated Flatline.” […]

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  4. 4
    softwarengineer says:

    When You Look at the Distressed Homes Compared to All Homes Existing in Seattle

    The percentage seems dinky. Its a moot point. We’re still talking 20-30% of all the pending sales are distressed. Its monstrous looking at it that way.

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  5. 5
    NESeattleSeller says:

    I used Redfin’s tool and count just 17 foreclosure SFR houses in Seattle that are north of the ship canal and east of I-5. 3 of those are MLS listed, the rest in some state of foreclosure. Not what I would call an avalanche of shadow inventory in NE Seattle. West of I-5m there are a few more, but mostly clustered on Aurora and in other dense spots with lower quality houses.

    This compares well against the burbs where overbuilding played a big role.

    I think this explains part of the reason we are not seeing big downward pressure on prices in NE Seattle. Rentals are hopping!

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  6. 6
    ricklind says:

    By ray pepper @ 2:

    RE: Kary L. Krismer @ 1

    Agreed..Of the many I know in foreclosure it is very apparent they all seem to be in “limbo.”

    When asking about their properties the owners have no idea what state of foreclosure they are in and most have gotten their Notice of Default yet no follow-up………

    But, make no mistake about it they will be coming:
    http://www.nytimes.com/2011/07/12/business/foreclosures-by-bank-of-america-expected-to-rise.html?pagewanted=all

    Good article. The quote by the spokesman for BoA, Tony Meola, is interesting because it points to the fact that the BIG BANKS (BBs) will eventually have to unwind the bad debt on the books.

    If I use the “follow the money” principal, then one of the reasons there is such a backlog in foreclosures is because there is no money to be made in that part of the business. Duh. So there is no incentive to work very hard or invest many resources there. Until the property is actually sold there is no loss. When you can keep it at a wrong high valuation as long as possible, why act to foreclose and sell?

    But eventually there has to be some kind of mark to market, and so they have to have some sort of serviceable mechanism to move those properties.

    Does this mean the BBs are capitulating in a way, recognizing that it is better to liquidate first in a down trending market rather than to delay and hope for an upturn, or another government bailout?

    Eventually we have to find some sort of bottom. Eventually could be awhile coming.

    Best,

    Rick

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  7. 7
    One Eyed Man says:

    RE: ricklind @ 6

    Real estate isn’t considered fungible like securities so mark to market probably isn’t exactly the appropriate concept. But I believe that financial institutions are required to accrue a loss reserve on non-performing loans and the amount of that reserve is an immediate hit to the income statement. Assuming I’m correct, the issue then becomes how close the loss reserve allocation is to the actual amount of the loss eventually incurred. If someone has the expertise in financial institution accounting, perhaps they can enlighten us on the timing and amount required for loss reserves and the likelihood that the reserves are anywhere near close to the actual loss.

    With regard to mark to market, be careful what you ask for. If you think that assets should always be marked to market, you’re effectively saying that the dot com prices for tech stocks were realistic values for those assets and that bubble prices for real estate were reasonable values for appraisers to use to justify the amounts of loans that are now under water. Markets are fallible, they aren’t the messiah. The use of market values is a double edged sword that helped create the bubble in the first place.

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  8. 8
    johnnybigspenda says:

    does anyone have estimates on the “shadow inventory” of foreclosed properties in the Seattle area? I know that places like Phoenix and Vegas have thousands and thousands of homes that are not on the market and that those homes are added into the tally for the “massive shadow inventory”. I guess, what I’m getting at is the shadow inventory in Vegas has little effect on the market in Seattle. So I am interested to know how much of a backlog or how much inventory is being withheld from the market to understand how much of a factor they will be in the future for Seattle’s market.

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  9. 9
    ricklind says:

    RE: One Eyed Man @ 7
    Good points. My use of mark to market is pretty simplistic, that “fair” market value will follow what actual prices are, And yes, I agree, that it was probably partly at play during the run up. The “fair” value moves with the market. Just sayin’ that valuations eventually follow actual market prices.

    My take is that mark to market is more a mechanism of valuation than a cause. I understand enough capitalism to predict that prices mostly, mostly, follow demand, but also recognize that in this economy politics and artificial price pressures have a major effect. I think that the bubble, in part, was due to artificial affordability (temporary easy loans and goofy interest structures) and led to the price inflation we saw. Oh yeah, and those still stupid derivatives that were and still are repackaged bad debt as Aaa bonds. Thank you (not) Goldman Sachs.

    And now we’re here, with foreclosures being delayed, for whatever reasons, and lots of shadow inventory just out of sight. And all of this will have to be de valued before a true bottom (whatever that is) settles in and we re build. YMMV.

    FWIW, I am better on the macro side than the micro, which is one reason why I like The Tim’s site. I learn a ton by reading, and post when I have something to add that might be worthwhile to add to the mix.

    A question: What do you think are the motivations for the BBs to start to change the tune? Why NOW to seriously revalue mortgage debt?

    For anyone who hasn’t already read them there are pre mortem (pre death) and post mortem (post death) books that fit together nicely across the great crash.
    Pre mortem: “Demons of our Own Design” by Richard Bookstaber
    Post mortem: “The Big short” Tim Layden

    Best, and Thank You,

    Rick

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  10. 10

    RE: One Eyed Man @ 7 – On a similar note, I’ve suspected that a lot of the banks’ profits the last couple of years has been due to loans being refinanced, which would pay off massive amounts of loans which have loss allowances associated with them. Like OEM though, I too am not that familiar with the accounting systems used by the banking industry.

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  11. 11
    CCG says:

    Is an elevated flatline like a permanently high plateau? :-)

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  12. 12
    CCG says:

    “via @WSJ – A Home Is a Lousy Investment http://on.wsj.com/p2JP8d [Duh.]”

    When you need tomorrow’s financial advice today, there’s Seattle Bubble.

    When you need yesterday’s financial advice tomorrow, there’s the WSJ.

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  13. 13
    Blurtman says:

    RE: One Eyed Man @ 7 – Right. And why can’t underwater homeowners get a home equity loan using the original purchase price as the asset value? Considering suspension of mark to market and everything else that the banks have received, it really isn’t too hard to believe, as has been reported, that Bush, Paulson, Obama, Geithner, anbd Bernanke have told prosecutors to lay off prosecuting Wall Street fraud. Why does the well being of the USA depend on crooked investment banks?

    Regarding mark to market, the only true way to determine value is what someone will buy and sell something for at the time, even if you believe thay are wrong. Clearly lots of folks believed at the time that tech stock valuations were absurd. Lots of folks believed the same about home prices during the housing bubble. But at the time, these were just opinions, proven correct in hindsight.

    I think it is inappropriate to use the bias of retrospective analysis to caution against mark to market. Market prices are what the market will execute on at that point in time. Everything else is just speculation. And yes, the market is not infallible.

    At the time of mnark to market suspension for RE assets, the rationale was that a lack of liquidity distorted the “real” prices of these assets. Now what is the rationale? That banks will be insolvent if we reinistate market pricing? This is a free market economy?

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  14. 14
    ChrisM says:

    RE: johnnybigspenda @ 8 – Redfin can show foreclosed properties that haven’t hit the market.

    Basically, go into the search option for Redfin, deselect all price and “include only” filters, then select “foreclosed homes” and voila.

    According to Redfin, there are 143 such houses with at least two bedrooms in Seattle proper.

    See
    http://seattlebubble.com/blog/2011/07/13/the-shadow-inventory-next-door/#comment-136921

    for further info.

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  15. 15

    By Blurtman @ 13:

    Regarding mark to market, the only true way to determine value is what someone will buy and sell something for at the time, even if you believe thay are wrong. Clearly lots of folks believed at the time that tech stock valuations were absurd.

    That reminds me of Devo’s lines: “The next thing I say to you will be true. The last thing I said was false.” ;-)

    I would disagree with this entirely. Sometimes markets don’t function properly. At the start of the financial crisis (the mortgage one I believe) auction rate securities became worth essentially nothing if you believed market value. You could have the issuing creditor be a solvent hospital, but the market was frozen. To a great extent the same thing happened on mortgage backed securities, but perhaps for better reasons (harder to determine value).

    Perhaps a more current example, last year the value of a Prius was probably temporarily in free fall as the issue of potential defects was raised by the press. Bad information can lead to bad results.

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  16. 16
    One Eyed Man says:

    RE: Blurtman @ 13

    Mark to market is for those who would follow the rest of the lemmings off the cliff. The key is not to create financial bubbles in the first place by not appraising and lending based upon inflated market values. I’ve always maintained on this blog that residential appraisals should have an income component similar to commercial appraisals so that loan values are to some degree limited by the rental value and not just the “market value” of “comps.”

    Forcing the nationalization of the financial system through “mark to market” is shutting the barn door after all the cows have gotten out. I’m a pragmatist, not a capitalist or a defender of banksters. You want to risk destroying what’s left of the economy by increasing financial chaos through nationalization of the US financial system just to make sure Jamie Dimon doesn’t get more money. Get over it. By the time you’ve created the bubble you’ve got bigger problems than whether Jamie Dimon is a crook with a big bonus. Once you’ve created the bubble, all your cows are already gone. You don’t keep them from getting away with “mark to market.”

    And the idea that putting banksters in jail will prevent future banksters is largely a myth. Putting a thousand banksters in jail in the 1990’s and the Enron and Worldcom execs in jail didn’t stop the recent financial miscreants. Note that I didn’t say criminals shouldn’t be prosecuted. I said that prosecuting criminals isn’t the primary answer to stopping future financial crises.

    If you can’t answer the question of how financial system loss reserves are set, then you can’t tell me that they aren’t a reasonable approximation of the losses to be realized and perhaps as good or better than “mark to market.” But most importantly, mark to market isn’t the answer to avoiding future financial chaos. Proper underwriting that doesn’t base collateral values on unrealistically high market values is a much better answer.

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  17. 17

    By One Eyed Man @ 16:

    And the idea that putting banksters in jail will prevent future banksters is largely a myth. Putting a thousand banksters in jail in the 1990’s and the Enron and Worldcom execs in jail didn’t stop the recent financial miscreants. Note that I didn’t say criminals shouldn’t be prosecuted. I said that prosecuting criminals isn’t the primary answer to stopping future financial crises.

    Beyond that, prosecuting people where there isn’t a clear crime will lead to good people getting out of the economy altogether, except to the extent that they live on their savings, with much of the benefit of that going to the producers of fine liquor in Scotland. The same would have been true of the nutty idea floated in the House of Representatives of taxing them at 97%.

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  18. 18
    Blurtman says:

    RE: One Eyed Man @ 16 – Well, I agree with your stance regarding proper a priori behaviour. However, to jail or not to jail gets into the realm of a discussion beyond the banksters. Murders still occur even though the crime is prosecuted, for example. But I will say that there is even a more fundamental reason to exhibit what appears to be a fair legal system to the American public and that is the restoration of faith in our system. This is a critical ingredient not only for the functioning of our economic system, but for the functioning of society.

    Re: bubbles, where would past GDP be without their bogus contributions?

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  19. 19
    HDR says:

    RE: NESeattleSeller @ 5 – Depends which burb. There are not very many foreclosures in Sammamish, for instance, or most eastside burbs for that matter.

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  20. 20
    WillyNilly says:

    RE: One Eyed Man @ 16

    Although it may not remedy systemic shortcomings, I would feel much better – along with many others I imagine – to see some dessicated reminders swinging above the entrances of many a financial institution. Hang them high, often, and pervasively. This country needs a revolution 2.0. Things have just not gotten uncomfortable enough yet on a widespread scale. Perhaps big things are just around the corner. A few corporal punishments may prompt the expediting of foreclosure inventory. Seeing as the carrot of profit has not been motivating enough , it may be time to get out the stick of rectitude.

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  21. 21
    LocalYokel says:

    By NESeattleSeller @ 5:

    I used Redfin’s tool and count just 17 foreclosure SFR houses in Seattle that are north of the ship canal and east of I-5. 3 of those are MLS listed, the rest in some state of foreclosure. Not what I would call an avalanche of shadow inventory in NE Seattle. West of I-5m there are a few more, but mostly clustered on Aurora and in other dense spots with lower quality houses.

    This compares well against the burbs where overbuilding played a big role.

    I think this explains part of the reason we are not seeing big downward pressure on prices in NE Seattle. Rentals are hopping!

    Look at the last sale date and purchase price. I have notice many people are probably negative or near negative equity with homes purchased after 2005 or so, generally, if they tried to sell now. Some people are willing to take a big bite of a crap sandwich to move and to sell their homes, at a loss of equity. Strange middle ground of foreclosure/shortsale.

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  22. 22
    softwarengineer says:

    RE: HDR @ 19

    You’re Totally Wrong

    Bellevue is the foreclosed home capital of the world:

    794 foreclosed
    526 existing plus only one new one

    http://realestate.aol.com/Bellevue-WA-real-estate

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  23. 23
    HDR says:

    RE: softwarengineer @ 22 – Bellevue is one among several eastside burbs, but from reading your posts all these years, I can reluctantly understand how you draw the conclusion that I’m “totally” wrong. And for the sake of comparison, you should probably use the same source as NESeattleSeller. But I know you aren’t interested in making any sense. Your incompentence at finding and analyzing data on the internet has been pointed out time and time again on this board.

    “Foreclosed home capital of the world”??? Do you think about your comments before you make them?

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  24. 24
    bingo says:

    RE: softwarengineer @ 22RE: HDR @ 23

    HDR makes some good points about the link you provided.

    The Aol link shows that prices are down 2.5% yoy in Bellevue. “The Tim’s” Case-Shiller posts show prices down over 9% in the Seattle area, since last June. Seems Bellevue is doing better than a lot of places.

    The Aol link states: “There are 407 homes for sale in this location, including 794 foreclosures”. This must be some of the “new math” they are trying teaching my son. There are 407 homes for sale which includes 794 foreclosures? I’ve got a call into my son to figure out what this means. In the meantime, I’m old school, but if there are 794 foreclosures included in the number of homes for sale, there ought to be at least 794 homes for sale?

    Assuming there are 407 homes for sale, and, an additional 794 in foreclosure, the link states there are over 52,000 homes in Bellevue. The % of homes for sales (including potential shadow inventory) is around 2.3% of all the homes in the city. I bet an apartment owner would be happy with that as a vacancy rate.

    I think I need a better source of data than AOL links. Any suggestions?

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  25. 25
    Dirty_Renter says:

    RE: One Eyed Man @ 7
    You’re talking about provisioning, a best guess of future losses, and as you said, an income statement entry. A bank provisions for loan losses each quarter according to a mix of delinquencies and asset valuations. For large banks, it is a formula; for small banks, it can be done on a loan by loan basis.
    Said provisions go into the balance sheet ‘reserve for bad debt’. On a side note, charge-offs reduce this ‘reserve’ and is used when a foreclosure is completed & appraised & placed into REO, and used again when the property is sold.

    If you listened to the C commentary today, they had good Q2 earnings of $3.3B, but everyone was saying the earnings were ‘low quality’ because $2B was pulled out of reserves due to lower than anticipated charge-offs.

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  26. 26
    The Tim says:

    RE: softwarengineer @ 22 – Apparently AOL Real Estate just likes to make up numbers. There are nowhere near 794 foreclosures in Bellevue right now. More like 106, only 45 of which are actually for sale right now.

    By bingo @ 24:

    I think I need a better source of data than AOL links. Any suggestions?

    Yes, try this: http://www.redfin.com/city/1387/WA/Bellevue

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  27. 27
    Blurtman says:

    RE: WillyNilly @ 20 – Unforutantely, the moderate Republican president Obama and his Wall Street conciliare, Geithner, are continuing the same no prosecution of Wall Street fraud that Bush and Hank “Goldman Sachs” Paulson formalized in the summer of 2008. But you make sure to obey the law, you hear?

    Bush and Paulson order an official no prosecution of Wall Street fraud policy in the summer of 2008.

    At 6:32 in the story: http://www.npr.org/2011/07/13/137789065/why-prosecutors-dont-go-after-wall-street

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  28. 28

    By Dirty_Renter @ 25:

    If you listened to the C commentary today, they had good Q2 earnings of $3.3B, but everyone was saying the earnings were ‘low quality’ because $2B was pulled out of reserves due to lower than anticipated charge-offs.

    Since you apparently follow this, was that just recalculating how they do reserves or was it from refinancing activity paying off older loans, the item I mentioned above?

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  29. 29
    Dirty_Renter says:

    RE: Kary L. Krismer @ 28 – I didn’t listen to the conference call and the 10Q is not out yet. Since it was a ‘reserve release’, instead of a lowering of provisioning(a guess), it means they have hard evidence that the charge-offs were not as bad as anticipated. A banker of reasonable intelligence would not release reserves unless he/she has concrete evidence, such as sales or refi’s of their impaired assets. By refi’s, I mean w/ another institution.

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  30. 30
    One Eyed Man says:

    RE: Dirty_Renter @ 29

    Thanks for the info on loss reserves Dirty_Renter. Half the time these days I don’t know if I actually remember something I read long ago or if I’m just making it up. The other half of the time I know I’m making it up.

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