Pro Teck Valuation Services' Home Value Forecast (HVF) examines the speed at which the distressed real estate inventory dissolves by analyzing detailed property data in Connecticut, New Jersey, and New York, shedding light on the transition from negative equity to foreclosure and highlighting a key driver—the current loan-to-value (LTV) ratio. The study also found that likelihood of foreclosure peaks during the second or third year within the negative equity inventory. This month's Lessons from the Data highlight the potential value of applying survival models to the study of the transition from negative equity to the real estate-owned (REO) inventory. The authors focus on three ZIP codes in New York, New Jersey and Connecticut, and offer estimates of the duration or time this transition process takes for more than 5,000 properties. The authors captures important differences among these three states, including an array of outcomes other than foreclosure such as short sales, regular sales and in most cases, no change at all. "A key ingredient of the approach is the measurement of the current LTV over time at the property level," said Tom O'Grady, chief executive officer of Pro Teck Valuation Services. "Our research shows that the transition from negative equity to foreclosure seems to peak at around the second or third year and higher current LTVs lead to higher foreclosure rates, all else equal." The authors also examined another possibility that many call a strategic default, that is, there are some homeowners who have negative equity and await some additional stimulus to lessen the great pain associated with foreclosure. "Perhaps those borrowers with substantial negative equity can see a brighter day with higher prices on the horizon and, if right, postponing default and foreclosure for a little longer may be prudent," said James R. Follain, principal of James R. Follain LLC and contributing editor to Home Value Forecast. "Let's hope they are right!" Home Value Forecast was created from a strategic partnership between Pro Teck Valuation Services and Collateral Analytics. HVF provides insight into the current and future state of the U.S. housing market, and delivers 14 market snapshot graphs from the top 30 CBSAs. HVF is built using numerous data sources including public records, local market MLS and general economic data. The top 750 CBSAs as well as data down to the ZIP code level for approximately 18,000 ZIPs are available with a corporate subscription to the service.