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Foreclosures are big business

By Marcie Geffner ·
Wednesday, October 20, 2010
Posted: 4 pm ET

Properties in some stage of foreclosure (loan default, scheduled for action or lender-owned), accounted for 24 percent of all U.S. home sales in the second quarter of 2010, according to the RealtyTrac online foreclosure information service. And that percentage might well have been higher had the homebuyer tax credit not goosed the sales volume.

The national figure understates the proportion of distressed home sales in some locales. In Nevada, nearly 56 percent of homes sold in the second quarter were in some stage of foreclosure. In Arizona, the figure was 47 percent. California? 43 percent. And other, perhaps less obvious, states where foreclosure sales accounted for at least one-quarter of total sales were: Rhode Island (37 percent), Massachusetts (35 percent), Florida (34 percent), Michigan (33 percent), Georgia (27 percent), Idaho (27 percent), and Oregon (25 percent).

During the housing boom, foreclosures were rare. Anyone who wanted "out" of a house simply could sell it and pay off the mortgage. Not many people depended on residential real estate foreclosures to make a living.

But now, when the foreclosure machine slows down or speeds up, it's not just homeowners who haven't made their mortgage payments who are affected. Real estate brokers and sales agents, homebuyers, mortgage brokers, property managers, leasing agents, closing attorneys, foreclosure processing services, foreclosure clean-out-and-fix-up firms, home repair contractors, real estate appraisers, pest control companies, foreclosure analysts, foreclosure tracking services -- the list goes on, and all are tied to the business of foreclosure sales.

If foreclosure homes were removed from the housing markets, more "regular" homeowners might decide to sell their home in hopes of prices that weren't depressed by these so-called "distressed" sales. And those additional discretionary sales would make up some of the slack if foreclosures were gone.

But housing markets don’t turn on a dime. In fact, housing is notoriously cyclical over long cycles. That suggests that any slowdown in foreclosure sales postpones the pain and prevents the cycle from moving forward.

For the good of the order, let's hope a housing industry that's so dependent on foreclosures doesn't forget any other way of doing business.

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