Zombie foreclosures lurk locally but largely vanish

They were one of the worst blights of the housing crisis.
Zombie foreclosures –abandoned homes in some state of foreclosure but not yet repossessed by banks and put up for sale.

In some neighborhoods there were so many, they took up half a block. In others, they stood out, grass un-mowed, trash in the yard, glaring, often dangerous reminders of the worst housing crisis in history.

Now, thanks to rising home prices and streamlined foreclosure rules, they are half of what they were just a year ago.

Foreclosure house

Zombie foreclosures now account for just over one percent of the 1.5 million vacant homes in the United States, according to RealtyTrac.

States with the most vacant “zombie” foreclosures were New Jersey (3,997), Florida (3,512), New York (3,365), Illinois (1,187) and Ohio (1,028), and some markets, such as Boston, St. Louis and Philadelphia, have seen an increase in their zombie population.

That increase is likely due to an increase in default notices in states with a very slow foreclosure process that can drag on for years; with backlogs so big for so long, banks waited to file.

Now, as those backlogs ease, the banks are filing, but the new default notices are on homes that have been delinquent possibly for years, so they are more likely to be vacant when they finally get to foreclosure.

“The overall inventory of homes in the foreclosure process has dropped 36 percent over the past year so it’s not too surprising to see a similarly dramatic drop in vacant zombie foreclosures,” said Daren Blomquist, vice president at RealtyTrac.

“What is surprising is there are so many vacant homes where the homeowners do not appear to be in financial distress.”

The majority of vacant homes, 63 percent according to RealtyTrac, are owned outright with no mortgage.

“The fact that the homeowners are not selling, given the recovering real estate market in most areas, indicates that many of these properties are in poor condition and in neighborhoods that have been left behind by the housing recovery,” said Blomquist.

The problem is particularly prevalent in cities such as Chicago and Detroit, where distressed homes are highly concentrated in certain neighborhoods. 5.5 percent of Detroit homes are currently vacant, according to the report.

“Some single family homes stay vacant because they’re in the wrong place, in markets where population isn’t growing and demand is weak. But the big question is whether some owners are holding vacant houses in strong-demand areas off the market, hoping to sell higher if prices keep climbing,” said Jed Kolko, Senior Fellow, at the TernerCenter at UC-Berkeley.

Nationally, the supply of single-family homes for sale is extremely tight, and yet a lot of single-family homes remain vacant and off the market. The overall vacancy rate for single-family homes is still near its recession-level high, when you include homes held off the market, according to Kolko.

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