Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.

Recs

2

A Weird Side Effect of Some Very Good Housing News

Watch stocks you care about

The single, easiest way to keep track of all the stocks that matter...

Your own personalized stock watchlist!

It's a 100% FREE Motley Fool service...

Click Here Now

Earlier this week, CoreLogic came out with some good news on the housing front: Rising home prices during the first quarter of this year have raised values, lifting about 850,000 homeowners out of negative-equity territory. While 9.7 million home loans are still underwater, the number of these troubled mortgages has fallen enough to encompass less than 20% of total loans. At the end of 2012, 10.5 million homes had negative equity.

Hot on the heels of this uplifting announcement comes the news that banks repossessed more homes in May than in the month previous -- 11% more, overall. In some areas of the country, the percentages were eye-popping: North Carolina saw repossessions rise by 60%, and Oregon's rate jumped 57% from April to May.

Banks want to get in on better pricing
While it might seem counterintuitive that fewer homeowners being caught in the negative equity trap would result in a higher number of foreclosures, that is exactly what is happening.

Why are banks suddenly in such a hurry to take possession of more real-estate-owned properties? Several factors are at work, here, but the biggest reason appears to be that banks see values rising, and they perceive a chance to quickly dispense with lots of foreclosures that they otherwise wouldn't have been able to unload.

Additionally, the five top lenders, Ally Financial, Bank of America (NYSE: BAC  ) , Citigroup (NYSE: C  ) , JPMorgan Chase (NYSE: JPM  ) , and Wells Fargo (NYSE: WFC  ) , have mostly fulfilled the terms of the National Mortgage Settlement, the $25 billion mortgage-fraud pact signed last February. Without the added requirements of that pact slowing them down, banks are able to process foreclosures more quickly these days. Of the signatories, only Citi did not increase the number of repossessions last month.

A good thing for housing?
Some analysts say this phenomenon should be positive for housing, since the current inventories of for-sale homes are so low. Of course, these houses will still be foreclosures -- and flooding the market with those homes hasn't helped housing much so far -- though it certainly has been a boon to institutional investors, groups that have been able to scarf up repossessed homes in large numbers for a nice discount.

Is this trend really the result of higher home values, or could it be something else? The rise in repossessions seems to have happened very suddenly and quickly -- especially when you consider that, on average, prices rose only around 12% nationwide over the past year.

More likely, I think, is the "second wave" theory that some proffered after the fraudulent foreclosure deal was inked. The idea was that, once the agreement was done, banks would be free to take back and process homes that had been in a sort of foreclosure abeyance during negotiations with all 50 attorneys general.

In a way, I think that's what is happening, just a little bit later. Banks were also slowed as they worked under the terms of the settlement; now that those requirements are nearly fulfilled, they can really get down to business. If so, then the second wave has arrived, and it's going to get bigger -- which will drive prices down, again. The housing corner, I think, is further ahead than many realize.

Citigroup's stock looks tantalizingly cheap. Yet the bank's balance sheet is still in need of more repair, and CEO Michael Corbat still needs to prove himself. Should investors be treading carefully, or jumping on an opportunity to buy? To help figure out whether Citigroup deserves a spot in your portfolio, I invite you to read our premium research report on the bank today. We'll fill you in on both reasons to buy and reasons to sell Citigroup, and what areas Citigroup investors need to watch going forward. Click here now for instant access to our best expert's take on Citigroup.


Read/Post Comments (1) | Recommend This Article (2)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On June 14, 2013, at 12:06 PM, Johny205 wrote:

    That is just fine. Once most of the inventories of bank owned homes is sold, then the real housing market will improve vastly. When there is not many foreclosed homes on the market anymore, inventories will be shorter and the prices will go up a lot faster.

Add your comment.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2489832, ~/Articles/ArticleHandler.aspx, 7/3/2015 8:29:30 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Amanda Alix
sunnyspot

Foolish financial writer since early 2012, striving to demystify the intriguing field of finance -- which, contrary to popular opinion, is truly what makes the world go 'round.

Today's Market

updated 11 hours ago Sponsored by:
DOW 17,730.11 -27.80 -0.16%
S&P 500 2,076.78 -0.64 -0.03%
NASD 5,009.21 0.00 0.00%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

7/2/2015 4:07 PM
BAC $17.03 Down -0.19 -1.10%
Bank of America CAPS Rating: ****
C $55.37 Down -0.31 -0.56%
Citigroup Inc CAPS Rating: ***
JPM $67.52 Down -0.55 -0.81%
JPMorgan Chase & C… CAPS Rating: ****
WFC $56.74 Down -0.17 -0.30%
Wells Fargo CAPS Rating: ****

Advertisement