Unemployment, not just lack of equity, is driving foreclosures, Rick Sharga of RealtyTrac, the leading source of data on foreclosures, told a gathering of real estate editors. Processing of so many foreclosed properties has slowed down and the so-called "shadow inventory" has grow so large that it will take until 2013 to work them through the system, he said.
Only some 48 percent of foreclosures are underwater, Sharga told the spring meeting of the National Association of Real Estate Editors in a panel discussion of strategic defaults. Unemployment caused the balance of owners to default, and he said that strategic defaults are a two step process; first owners find themselves owing more on a property than it is worth and then a financial crisis, such as unemployment, hits a family and they decide to walk away. A recent RealtyTrac/Trulia survey found that the vast majority of homeowners who have equity in their homes would never consider a strategic default.
The shadow inventory grew dramatically during 2009 as lenders became overwhelmed with the sheer volume of defaults. Of the three and a half million foreclosures last year, only about 20 percent were listed for sale. The balance is still being processed and will come onto market this year and next. It will take three years for homes in foreclosure this year to be sold.
"The recovery will be a long and painful process," Sharga said.
Also participating in the panel were Jack Shackett of Bank of America and Travis Hamel Olsen of LoanResolution LLC. It was moderated by syndicated real estate columnist Ken Harney of the Washington Post Writers' Group.
The National Association of Real Estate Editors is holding its 44th annual meeting in Austin this week.
