Foreclosure Freeze to Chill Spring Housing

The effects of the so-called "Robo-signing" scandal showed up in drastic numbers in a new report today from RealtyTrac. The number of properties receiving some kind of foreclosure filing fell 21 percent month to month and 14 percent year over year. It was the biggest monthly drop in the history of the survey. And while bank repossessions, a component of those filings, fell 28 percent month to month, the number still managed to push 2010 totals over 2009 with one month to spare. A new record number of borrowers lost their homes to banks this year, more than 980,000 so far.

Foreclosures fell 21 percent in November from the previous month and 14.4 percent from the year before, according to foreclosure tracking web site RealtyTrac. We will break a million for sure for the year.

Big banks have already re-started the foreclosure process, of course with "new safeguards," new forms" and "increased training efforts and personnel." That means the numbers will rise again, and all those frozen foreclosures will be back in the game along with new ones.

"There are five million loans that are seriously delinquent right now and not yet in foreclosure. A large, large number of those will hit the foreclosure pipeline next year. So 2011 is probably going to be a little bit worse that 2010 was," estimates RealtyTrac's Rick Sharga.

A lot of housing watchers have been looking to the Spring market for signs of new life again in housing. The argument goes that home prices are low, demand is high, and the economy is slowly beginning to improve. All of those are true, but the headwinds are picking up speed again.

Last night the Bankrate.com overnight average on the 30-year fixed mortgage hit 5.19 percent. We were at 4.24 percent barely two months ago. Depending on who you ask, that jump in rates will add anywhere from 6 to 9 percent to the price of a home. That takes away significant purchasing power.

Home prices are low, but they're going lower. CoreLogic [CLGX  Loading...      ()   ] today reported home prices nationwide fell for the third month in a row in October, down 3.93 percent year over year if you include sales of distressed properties, which are a big chunk of the sales market. Home prices are so low now that the big builders are having trouble keeping up.

"The builders’ piece of the pie is shrinking due to their reluctance to cut pricing enough to effectively compete with the existing home market," notes Dan Oppenheim over at Credit Suisse. "We estimate new home sales will represent just 7 percent of total single-family home sales in 2010, similar to the 8 percent in 2009, but far less than the 17 percent historically. This underscores the gap between new and existing home prices, and suggests builders will need to lower prices/increase incentives if they hope to regain volume next year."

Falling home prices for new and existing homes will spark better buying opportunities, but they will also fuel more fears of fence-sitters, worried that they will catch a falling knife by buying a home. Lower prices will also put more borrowers underwater on their homes (I talked about the effect that has on buying power in yesterday's blog) and make some sellers unable to get the cash they need to move up.

And then there are those foreclosure numbers I noted up top.

When the big banks ramp up the process again, as they did over the summer when we saw repossessions top a record 100,000 in one month, we will see another surge in inventory of homes for sale, and many at distressed prices.

Investor demand for those properties exists, but I'm not sure there are really enough all-cash investors out there to make the dent we need.

All this as we head toward Spring, and as the government takes up housing finance in the meantime.

Questions?  Comments?  document.write("");document.write("RealtyCheck"+"@"+"cnbc.com");document.write('');And follow me on Twitter @Diana_Olick

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