Ban expires, no Tri-Cities red flags yet

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Foreclosures are back. Expect to see a lot about them in the coming months. As expected, lenders stepped up activity as soon as the government moratorium expired on July 31. So far, there are some warning signs, but no local red flags.

There were 24 new Tri-Cities foreclosure filings in August, according to RealtyTrac’s Foreclosure Market Report. The Tri-Cities total is almost double July’s filings and three fewer than last year.

Rick Sharga, RealtyTrac’s Executive Vice President, doesn’t expect a flood of distressed properties coming onto the market. “We’ll continue to see foreclosure activity increase over the next three months as loans that were in default prior to the moratorium re-enter the foreclosure pipeline, and states begin to catch up on months of foreclosure filings that simply haven’t been processed during the pandemic. But foreclosures will likely remain below normal levels at least through the end of the year.”

And as those new monthly updates roll out, it’s a good idea to add a dose of context to the year-over-year comparisons. The moratorium kept last year’s new filings artificially low, so comparing this year’s new filings to them is a bad comp.

For a better trend outlook, check current filings against what they were in 2019. That was the last year untainted by the pandemic. And don’t forget to factor in equity appreciation. It lifted a lot of local seriously underwater properties out of hot water.

Here’s what happens when that context is applied to the August numbers.

There were 24 new filings last month. Not much different from August last year. Dial back to August 2019, and there were almost double the number of new filings. That says the region’s foreclosure picture is better than first blush if August wasn’t an abnormality and there’s a backlog of filings.

Tracking mid-year reports signal a pending increase of foreclosures, but not a surge. Clicking on the chart renders a larger image.

ATTOM’s mid-year foreclosure filings report shows there were 83 new filings between Jan.-June this year. Compare that to 433 during the first half of the pre-pandemic benchmark year. Since there was also a forbearance program in place, some backlog will likely begin showing up in the next few months, as Sharga noted in his U.S. outlook.

But there is a mitigating factor. It is what happened to the local housing market during the pandemic. It was a hot market before the pandemic. It was a sizzling, hot market during the pandemic. That and a lack of inventory put home prices in a double-digit growth mode. It was good news for homeowners having financial problems.

ATTOM’s mid-year equity report shows the appreciation fueled by pandemic buying significantly reduced the number of local owners who were seriously underwater on their mortgage. The regional underwater market share dropped from almost 10% to 4.9% between the second quarter of this year and the second quarter of last year. That’s a little over 3,000 owners who were boosted out of their financial squeeze.

The bottom line is stronger lending standards and high appreciation has taken the edge of the short-term foreclosure market. It also points to solid local fundamentals if no unforeseen significant hits to the economy.

While August’s report didn’t wave any local red flags, there were some warning signs.

Two counties – Carter and Sullivan –  had more new filings last month than they did in August 2019.   All other counties had fewer. It’s something to watch as the foreclosure market begins to take shape.

August’s new filings compared to the Aug. 2019 filings include:

Carter – 4, up 3

Unicoi – 2, down 2

Washington – 10, down 7

Hawkins – 6, down 5

Sullivan – 14, up 2

Bristol, VA – 1, down 1

Scott – 1, down 1

Washington VA – 5, down 5

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