This Week's Herman Trend Alert

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  The Herman Trend Alert

December 18, 2013

Zombie Homes and Vampire Foreclosures

The undead are plaguing the housing market.

Zombie homes and vampire foreclosures* are the latest threat to the unfolding housing recovery. So-called "zombie homes" are in foreclosure where the owner has abandoned the property during the foreclosure process, before the bank officially owns it. "Vampire foreclosures" happen where the owner still lives in the property, even though the bank already owns it.

As they began recognizing the trends, real estate listing and information site RealtyTrac coined the terms earlier this year. According to their data, about 21 percent of homes in the foreclosure process qualify as zombies and about 47 percent, as vampires. Together, they represent about 402,000 sets of homeowners across the United States who are struggling through the foreclosure process.

According to RealtyTrac's Daren Blomquist, there are two reasons for these trends. First, some states have longer foreclosure processes, because they must go through the courts. There the process may take months, if not years. (Explains the huge number of zombies)

Explaining the appearance of vampire foreclosures, Blomquist believes some are artificially being held back. By keeping them off the market, the banks are limiting inventory, thus driving up home prices. Moreover, selling more cheaply, distressed properties depress home prices around them.

For banks that arenŐt ready to sell, it is beneficial for them to let the homeowner stay and continue to care for the property, rather than let it fall into disrepair. That way the bank can wait until home prices increase and realize more money for that foreclosure.

We believe there is a third reason: Between the regulatory requirements, banks' sheer size, and no one wanting to make a mistake, the process of foreclosing is simply very drawn out---as are many other bank transactions.

While these trends are sure to continue next year and will likely persist even after that, they have nowhere to go but down. Foreclosure activity in the US has been decreasing every month for three years.

In fact, zombie homes, first identified in spring this year, decreased by about half over the summer and into the fall, even though they actually slightly increased over the fall. As home prices increase, we are likely to see more banks pushing former homeowners out of their foreclosed homes to get them back on the market.

Although these zombies and vampires are a US phenomenon, the housing bubble that, in part, caused this condition, is not confined to the US alone. Other countries of the world would do well to watch their real estate markets and guard against the dangerous up side down** mortgages that occur when bubbles burst.

Special thanks to Ilyce Glink is the CEO of ThinkGlinkMedia.com, a content publishing and marketing company whose clients include big corporations, including AOL, CBS News, and Equifax.

* Foreclosures are homes where having failed to make payment, the bank holding the loan, takes legal action to repossess the home.
** Mortgages are up side down, when homeowners owe more than the properties are worth.


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