Vacant Properties Trend Downward While Foreclosure Starts Surge Sevenfold
Vacant properties are inching downward in the first quarter of 2022, while foreclosure starts have surged sevenfold in January.
- 229,864 residential properties in the U.S. are in the process of foreclosure in the first quarter this year, up 3% from the previous quarter and up 31% from the first quarter last year.
- Among those foreclosed properties, 7,363 sit vacant in the first quarter of 2022, down quarterly by 0.9% but up annually by 10.3%.
- The portion of pre-foreclosed properties that have been abandoned into zombie status dropped slightly from 3.3% in the fourth quarter of 2021 to 3.2% in the first quarter of this year.
- Despite the significant increase over last year, zombie foreclosures continue to represent only a miniscule portion of the nation’s total stock of 98.8 million residential properties.
Vacant properties are inching downward in the first quarter of 2022, while foreclosure starts surged sevenfold in January.
Today, ATTOM released its first-quarter 2022 Vacant Property and Zombie Foreclosure Report showing that 1.4 million (1,354,579) residential properties in the United States sit vacant. That represents 1.4% or one in 73 homes across the nation.
The report states that 229,864 residential properties in the U.S. are in the process of foreclosure in the first quarter this year, up 3% from the previous quarter and up 31% from the first quarter last year. This increase marks the second consecutive quarter that pre-foreclosure properties have gone up since the nationwide moratorium, which prevented most lenders from taking over delinquent mortgages, was lifted at the end of July.
Among those foreclosed properties, 7,363 sit vacant in the first quarter of 2022, down quarterly by 0.9% but up annually by 10.3%. The portion of pre-foreclosed properties that have been abandoned into zombie status dropped slightly from 3.3% in the fourth quarter of 2021 to 3.2% in the first quarter of this year.
Despite the significant increase over last year, zombie foreclosures continue to represent only a miniscule portion of the nation’s total stock of 98.8 million residential properties. One out of every 13,424 homes in the first quarter of 2022 are vacant and in foreclosure — slightly better than the ratio of one in 13,292 during the previous quarter, but worse than the one-in-14,825 level during the time last year.
You may have heard of zombie apocalypse, but what is a zombie foreclosure? A zombie foreclosure refers to a situation where a homeowner vacates their property after receiving a notice of default, expecting they will lose the home in the pending foreclosure. The foreclosure may get canceled for any number of reasons, which means the house title will remain with the homeowner, who may not know they still own the home or are financially responsible for it.
So, the house is essentially dead; it decays and grows more decrepit over time, becoming a major eyesore for neighbors and those who would have wanted to move into the area. Too many of these zombie homes could financially ruin a community.
"Even with foreclosure activity rising, it doesn't seem likely that we'll see a significant increase in the number of zombie properties," said Rick Sharga, executive vice president of RealtyTrac, an ATTOM company. "Zombie status is most likely during a long, protracted foreclosure process, but with $23 trillion in homeowner equity, and demand outstripping supply, most distressed borrowers should be able to sell their home at a profit before the process drags on."
The zombie foreclosure trend shows how the decade-long surge in the U.S. housing market continues both in spite and because of the ongoing COVID-19 pandemic that damaged the U.S. economy. Home prices throughout much of the country soared over 10% over the past year, and seller profits commonly exceeded 40%. A tour of most neighborhoods would not show a single home in the foreclosure process sitting vacant and exposed to vandalism or decay.
As a glut of homebuyers flooded the market in the beginning of the pandemic, fueled by low mortgage rates and the desire to flee congested areas, home prices continued to soar as buyers chase a tight supply of homes, including those in foreclosure.
Zombie foreclosures could rise this year amid the recent increase in banks and nonbank lenders pursuing homeowners who have fallen behind on mortgage payments during the pandemic. Pre-foreclosure numbers spiked since the federal moratorium was lifted, which previously prevented lenders from reclaiming properties. Although employment is rising as the economy recovers, foreclosures are expected to keep growing. There was still an estimated 1.5 million to 2 million homeowners in some kind of forbearance when the moratorium ended.
"The problem of empty properties in foreclosure and the blight they can cause still remains off the table almost everywhere in the country. You'd need to search far and wide in most communities to find even one," said Todd Teta, chief product officer with ATTOM. "But the rosy picture is again in danger. That's because foreclosure activity has started to kick upward since the moratorium was lifted. While it's unlikely that a tidal wave of zombie properties is headed our way as the economy improves, the number seems likely to head up to some degree this year. It will depend on how fast the courts process cases and how many delinquent homeowners can catch up on mortgages."
Six or seven states with the most zombie foreclosures are in the Northeast and Midwest. New York continues to have the highest number of zombie properties (2,074 the first quarter of 2022), followed by Ohio (942), Florida (916), Illinois (676) and Pennsylvania (356).
"If we do see a jump in the number of zombie properties, it will likely happen in states like New York, Illinois, and Florida," Sharga noted. "Judicial foreclosures in these states often get delayed by court backlogs, and the foreclosure process has sometimes dragged on for over 1,000 days."
Additionally, Black Knight reported their “first look” at January 2022 month-end mortgage performance statistics, reflecting many of the same trends as ATTOM's report. Key findings from the report include:
- Foreclosure starts rose sharply in January as borrower protections in place throughout the economic recovery begin to roll off, with 32,900 loans referred to foreclosure in the month
- The national foreclosure rate rose to its highest level since May 2021 (0.28%) - still nearly 40% below its pre-pandemic level, with foreclosure sales (completions) 70% below January 2020 levels
- A backlog of post-forbearance loans in active loss mitigation - plus another 379,000 that have finished loss mitigation but remain past due - calls for a close watch on foreclosure metrics in coming months
- Prepayment activity hit a more than two-year low, falling by 24% from the month prior as rising rates continue to put sharp downward pressure on refinance incentive