Is America’s housing industry finally awakening from its long nightmare haunted by foreclosures? Daren Blomquist thinks so.

 

“We’re passed the point where foreclosures are driving the housing market,” says Blomquist, a vice president with RealtyTrac, the Irvine, Calif.–based online market for foreclosure properties.

 

On Thursday morning, RealtyTrac released its Foreclosure Market Report for September and the third quarter of 2012, which shows that foreclosure activities nationwide had fallen to their lowest level in five years.

 

Yes, those activities continued to increase in 14 of the 26 states that adjudicate foreclosures in their courts, such as New Jersey, where foreclosures increased in September by nearly 228% over the same month a year ago. All told, though, foreclosure filings including default notices, scheduled auctions, and bank repossessions decreased nationwide in September by 7% to 180,427, and by 12.9% to 531,576 in the third quarter of this year.

 

The healing process is mending some of the country’s previously weakest housing markets, such as Nevada where third-quarter foreclosure filings declined by 71.3%. The blighted housing markets of Arizona and California saw third-quarter filings decrease by 23.4% and 28.5%, respectively. While it’s still taking up to 382 days, on average, nationwide to complete a foreclosure, the process in Arizona has been whittled to 194 days.

 

More problematic, though, is Florida, one of those judicial process states, where it takes 858 days to foreclose on a house. Foreclosure filings in the Sunshine State were up 17.3% in September, and 13.5% in the third quarter. Florida foreclosure starts in September increased 24% on a year-over-year basis, the 11th consecutive month with an annual increase, and the state’s foreclosure rate ranked highest nationwide for the first time since April 2005. Florida remains the one state where Blomquist is concerned that home prices could take another dip, especially if banks aggressively release more of their 77,076 REO properties there.

 

RealtyTrac estimates between 500,000 and 550,000 bank REOs nationwide, which Blomquist notes are down from about 1 million in January 2011. Only around one in seven REOs is currently being listed for sale, but Blomquist believes this so-called “shadow inventory” is far less likely to impact the housing industry’s pricing and supply than it might have 18 months ago.

 

Blomquist expects foreclosure filings in the judicial states to continue rising over the next two quarters, and to keep declining in the nonjudicial states. By mid-2013, he expects lenders “to get to a place where they’ve caught up with their backlog,” at which point they might start releasing more REO properties for sale. While that could hamper some markets’ recovery, Blomquist believes that buyer demand in most markets will absorb that extra inventory.

 

From January 2007 through September 2012, the foreclosure process was started on 9.1 million properties, RealtyTrac estimates. There were foreclosure completions—where the bank seized the property—on 4.5 million homes, and another 1.9 million units were sold to third parties, as through short sales.

 

How many of these foreclosed-upon homeowners will eventually be buyers again is anyone’s guess. A portion that felt they got burned during the recession could be hesitant to buy again for many years, says Blomquist. And ultimately it’s up to banks to determine who is qualified to purchase a house. But Blomquist sees more short sellers re-entering the market, and suggests that there’s roughly a “three-year window” between when an owner sells short and when a bank might consider that owner worthy again for a mortgage.

 

John Caulfield is senior editor for Builder magazine.