Is 2012 the Year of the Foreclosure? Let’s ask Realty Trac!

The Realty Trac ( website does a really great job of tracking foreclosure properties across the US.  Below is a heat map from their site that shows you exactly where the foreclosures were locally and throughout the US as of December 2011. Give it a try.  Hover over a state for the quick stats or click for more in-depth data by county, zip code and even by town, in some areas…but keep reading!

The underlying story behind the numbers is troubling.  However, there have been several articles and reports recently that point to 2012 as being the “Year of the Foreclosure”.   They point toward the Shadow Inventory (about which we’ve posted before: Shadow Inventory) of foreclosed homes that are out there.  Banks have begun have taking more proactive measures in dealing with those whose mortgages are significantly delinquent.  They are acting more quickly and more assertively.  This could lead to a wave of foreclosures in 2012.  With processing delays streamlined and political red-tape reduced, foreclosures will be happening faster and more frequently, in 2012. 

What will this do to the real estate market?  Well, an influx of foreclosure properties will likely drive prices downward, especially in those areas where foreclosures comprise a larger part of the market.  This will be as a result of supply and demand, as well as The Principle of Substitution.

We all understand the effects of supply and demand on a real estate market.  But The Principle of Substitution will also have a hand in whether or not foreclosures will affect values in the future. 

The Principle of Substitution (POS) basically assumes that a prudent individual will pay no more for a property than it would cost to purchase a comparable substitute property.   The POS recognizes that a typical buyer will compare asking prices and seek to purchase the property that meets his or her wants and needs for the lowest cost.   

In other words, “Why would I pay more for a house listed as a conventional sale if I can get a similar house for less, even if it is a foreclosure?”  That is why in certain markets if a foreclosure is similar in terms of condition, size, location, etc to those homes that are listed for conventional sale, the foreclosure may drive down the value of the conventional sales.  In those markets, if the conventional sales want to compete, they may have to “stoop” to the level of the foreclosure.

As 2012 moves forward, it will be interesting to see how elements like foreclosure, interest rates, the economy and even the Presidential election will affect the real estate market.  Regardless of what happens, it will be a pivotal year.

What do you think?  Please comment and start a conversation…

If you have any questions about your real estate market or foreclosures, please feel free to call or email The Coyle Group at 215.836.5500 or