Foreclosure Slowdown: What Does It Mean?

The Lehmann Letter (SM)

Foreclosure Slowdown: What Does It Mean?

Take a look at Sunday's front-page New York Times article on foreclosures:

http://www.nytimes.com/2011/06/19/business/19foreclosure.html?_r=1&ref=davidstreitfeld

The pace of foreclosures has slowed dramatically, especially in those states (roughly half) where foreclosure involves a court procedure.

How will this affect residential construction's recovery? We all know that dumping foreclosed properties on the market depresses real-estate prices and dampens residential construction. But……….. Does dumping foreclosed properties on the market all at once, and sharply depressing home prices, speed recovery? Or is recovery best served when foreclosed properties are offered for sale over a longer period of time, thereby mitigating the effect in any single year?

And that's not all. Will the slowdown, whether or not the courts are involved, compel banks to renegotiate a larger share of loans and thus reduce foreclosures and more swiftly stabilize the market? If that's the case, the foreclosure slowdown will aid market-price recovery and ultimately boost residential construction.

There is one thing we do know: These questions increase rather than reduce uncertainty, and that can't be good for any market.

© 2011 Michael B. Lehmann