Experts Optimistic on Housing Recovery After Foreclosures Reach Five-year Low

Given the economic malaise that has descended over the country in the past five years, many people have failed to notice that the real estate market is starting to show surprising signs of strength, which could indicate that housing prices, after having fallen more than 30% nationwide in the aftermath of the real estate collapse in 2006, may have finally reached a bottom.

The latest piece of good news has come from a report by RealtyTrac, an internet company that specializes in the foreclosure market. According to their most recent numbers, year-over-year foreclosure filings fell by 16% in September, reaching their lowest levels since 2007. In addition, given that year-over-year foreclosure filings have declined for 24 consecutive months, there is little reason to believe that this trend will not continue in the immediate future.

The glut of foreclosed homes on the market has been a major contributor to declining housing prices in recent years. The Federal Reserve Bank of New York has reported that more than three million homes have gone through the foreclosure process since the financial crisis began; these homes are often sold by banks, which are desperate to unload them in order to raise liquid capital, at distressed prices, creating a reinforcing cycle of declining prices that puts even more homeowners underwater on their mortgages. Inevitably, this process leads to yet another round of heart-wrenching foreclosure filings.

Fortunately, it appears that this depressive cycle may finally be coming to an end. Although it is certainly too soon to announce the arrival of a full-fledged recovery in the housing market, the latest foreclosure news has increased optimism among real estate professionals that prices may start to rebound in the coming years. According to a quarterly survey by HomeGain, an online company that provides real estate valuations for homeowners, four-fifths of professionals within the industry and nearly two-thirds of those who own a home expect housing prices to increase in the next 24 months.

In fact, the Standard & Poor's Case-Shiller index, the most widely used measure in evaluating nationwide housing prices, indicates that prices may already be rising. In July, the most recent month in which results are available, housing prices registered an annual gain of 1.2%, a relatively modest, yet psychologically important, improvement. This is welcome news for homeowners, who have experienced painful declines in housing prices for several consecutive years. At the same time, people who are looking to buy homes can still benefit from historically low interest rates, which are still below 3.5% for a fixed-rate 30-year mortgage.

The real estate market recovery may still be in its nascent stages, but the combination of declining foreclosures, increased optimism and low interest rates could very well establish the foundations of a long-awaited rebound in nationwide housing prices.