The housing recovery continued to gain momentum in May, with the number of homes in foreclosure down sharply from a year ago, according to a report released Tuesday by CoreLogic.
The number of completed foreclosures in the U.S. fell 27% in May to 52,229, from 71,123 a year earlier, tallies CoreLogic. Completed foreclosures did increase 3.5% vs. April.
As of May, the total number in some stage of foreclosure, known as the foreclosure inventory, declined 29% to roughly 1 million, from 1.4 million homes a year earlier. Month to month, the foreclosure inventory was down 3.3% in May from the prior month.
That foreclosure inventory represented 2.6% of all homes with a mortgage vs. 3.5% a year earlier.
Good News For Builders
Homebuilder shares surged Tuesday as the foreclosure report signaled that they face less competition. D.R. Horton (DHI) rose nearly 8%, KB Home (KBH) about 7%, Lennar (LEN) and Toll Bros. (TOL) 6%, with PulteGroup (PHM) up 5.5%.
In another telling sign, the residential shadow inventory as of April was below 2 million properties, or 5.3 months' supply. That represented 85% of the 2.3 million properties seriously delinquent, in foreclosure or REO. CoreLogic tallies shadow inventory — or pending supply — by calculating the number of properties that are seriously delinquent, in foreclosure or held as real estate-owned by mortgage servicers, but not currently on multiple listing services.
The overall shadow inventory is 34% below its peak in 2010, when it reached 3 million homes, and down 18% from a year earlier, the report said.
"We continue to see a sharp drop in foreclosures around the country and with it a decrease in the size of the shadow inventory," said Anand Nallathambi, CoreLogic CEO, in a statement. "Affordability, despite the rise in home prices over the past year, and consumer confidence are big contributors to these positive trends. We are particularly encouraged by the broad-based nature of the housing market recovery so far in 2013.
Completed foreclosures are an indication of the total number of homes actually lost to foreclosure. Since the September 2008 meltdown, there have been approximately 4.4 million across the U.S., according to CoreLogic.
The stock of seriously delinquent homes is also down sharply. At the end of May, there were fewer than 2.3 million mortgages, or 5.6%, that were 90 days or more past due.
"The stock of seriously delinquent homes, which is the main driver of shadow inventory, is at the lowest level since December 2008," said Mark Fleming, chief economist for CoreLogic. "Over the last year it has decreased in 42 states by double-digit figures, resulting in rapid declines in shadow inventory for the first quarter of 2013.
Rate Head Winds
The drop in distressed sales and inventory has boosted new-home sales and prices, giving builders' shares a big lift from late 2012. But they have retreated on interest rate fears, especially from mid-May, Federal Reserve comments suggesting a near-term start to tapering quantitative easing have sent mortgage rates soaring. Refinancing activity has plunged, but so far loan demand for buying a home has held up, perhaps in a rush to lock in still-low borrowing costs. However, many analysts expect rising rates to eventually curb home price appreciation but not derail the recovery.