Pro Teck: Recovery Between Judicial, Non-Judicial Foreclosure States Remains Stark

Pro Teck Valuation Services, Waltham, Mass., said despite falling home delinquency and foreclosure rates, the stark difference between states that use a judicial foreclosure process and those that minimize court actions continues to show up in recovery rates in those state’s cities.

The company’s February Home Value Forecast contrasts housing markets in Phoenix–Ground Zero in the foreclosure crisis–and Cleveland, a city also hit hard by the crisis. The Pro Teck analysis noted that seven of the Bottom 10 metro areas with the highest percentage of foreclosure actions, and 19 of the Bottom 25, came from judicial states. Cleveland, which has a judicial foreclosure process, ranked 21st.

By contrast, Phoenix ranked 174th.

“In our May 2014 Update we highlighted the differences in the recoveries the two cities were experiencing, and how foreclosure laws in Cleveland (judicial foreclosure) versus Phoenix (quicker, non-judicial foreclosure) were impacting the market,” said Tom O’Grady, CEO of Pro Teck Valuation Services. “Today, the lag in recovery can still be seen in states with judicial foreclosure laws, where the foreclosure process can take up to two years.”

Pro Teck noted in May 2014, Cleveland was one of Pro Teck’s “Bottom 10” markets, mostly due to there being one foreclosure sales for every three market sales (32.47 percent). In a healthy market, foreclosure sales as a percentage of market sales would be 5 percent (one foreclosure sale for every 20 market sales).

By contrast, in February Cleveland’s foreclosure sales as a percent of market sales was 17.45 percent–half of what it was a year and eight months ago. Months of Remaining Inventory also saw a reduction, from 8.39, to a healthier 6.26.

“Cleveland’s judicial foreclosure process has drawn out its recovery versus Phoenix, and prices have not rebounded to anywhere near pre-crash levels,” O’Grady said. “With a large number of 2006 HELOCs coming due, many could find themselves in a difficult situation when their loan is called.”

Contrast that to Phoenix: in 2012, after hitting bottom, Phoenix’s housing prices rebounded strongly. During this time, Phoenix quickly worked through its foreclosure inventory. In February, Pro Teck said Phoenix recovered completely and has a strong and stable real estate market with 5 percent foreclose as a percent of sale and 4.51 MRI, both signs of a strong market.

“This strength can be seen in pricing trends, where once the average home had lost more than 50 percent of its value are now back to 85 percent of pre-crash highs,” O’Grady said. “We believe that Phoenix will make up the majority of the 15 percent gap within the next two years.”

Pro Tech ranked single-family home markets in the top 200 metros. Top 10 metros this month:

–Bellingham, Wash.
–Bend-Redmond, Wash.
–Grand Rapids, Mich.
–Medford, Ore.
–Ogden, Utah
–Portland, Ore.
–Sacramento, Calif.
–Salt Lake City
–Santa Rosa, Calif.
–Stockton-Lodi, Calif.

Bottom 10 metros this month:

–Abilene, Texas
–El Paso, Texas
–Killeen-Temple, Texas
–Longview, Texas
–McAllen, Texas
–Atlantic City, N.J.
–Jacksonville, N.C.
–Midland, Texas