Survey: Consumers Expect Foreclosures to Rise in 2011

Most consumers expect foreclosure inventories to rise in 2011. This is according to a recent survey conducted by the Home Buying Institute.

The 2011 Foreclosure Expectation Survey was presented to more than 15,000 readers on the Home Buying Institute website, from January 1 – 31. Of those who responded, 77% said they thought the number of foreclosure homes in their area would increase in 2011.

2011 Foreclosure Survey

Rising Foreclosure Rates in 2011?

When asked about local foreclosure inventory in 2011, consumers responded in the following ways:

  • 77% said they expect the number of foreclosure homes to increase in 2011.
  • 17% felt that the inventory of foreclosed homes would stay about the same.
  • 6% thought the number of foreclosures would decrease this year.

The survey suggest that most people think housing recovery is still a ways off, at least from a foreclosure perspective. Or maybe they’re just reading the news. In January, the foreclosure-tracking company RealtyTrac made some ominous predictions about the foreclosure rate in 2011. Specifically, they said the number of foreclosure filings in the United States could increase by about 20 percent in 2011, reaching a peak at some point during the year.

In 2010, there were 2.9 million foreclosure filings. One million of them ended in repossession. This year could break the old record and set a new one. If RealtyTrac’s predictions for a 20-percent increase in foreclosure filings holds true, it would amount to 3.4 million filings in 2011 — and probably well over a million bank repossessions.

In a related survey, 83% of home buyers said they would be comfortable buying a bank-owned home in 2011.

Many feel that job growth is the only way to stem the tide of rising foreclosures. Mortgage-modification programs clearly are not enough. According to Diane Westerback of Standard & Poor’s: “The [loan modifications] cannot cure the entire problem. Maybe if the economy picks up and more people get jobs, that would cure it.”

Unfortunately, the national unemployment rate is expected to hover above 9 percent throughout 2011.

The Effect on Home Prices

An increase in foreclosures will drive up the housing inventory, unless home-buying activity rises to meet it. This is referred to as the “absorption rate.” In 2011, the supply-and-demand picture could remain skewed by excessive inventories. This puts downward pressure on home prices. On the demand side, we also have the “problem” of tighter lending standards. It’s a lot harder to qualify for a mortgage today than it was five years ago. Nine-percent unemployment doesn’t help the situation either.

A handful of real estate markets, like Washington, D.C. and Houston, could actually see some appreciation in 2011. But the general consensus for most other cities is that home prices will either stay flat or drop. How much they drop will likely come down to two factors — foreclosures and unemployment.