Thursday, May 11, 2006

Thousands of homes in foreclosure could put Colorado's housing market under severe stress

Thousands of homes in foreclosure could put Colorado's housing market under severe stress this summer, according to real-estate experts.

Colorado reported 5,392 foreclosures in March, making for the highest rate per household of any state, according to RealtyTrac, a provider of foreclosure listings.

Of the Colorado foreclosures:

--Thirty-one percent, or 1,648, were in the preforeclosure or notification stage, where delinquent borrowers have the best chance to keep their property.

--Fifty-four percent, or 2,894, were headed to auction, where outside investors can claim the property by paying off the mortgage.

--Sixteen percent, or 850 homes, were in the hands of lenders, who are often forced to sell the properties for whatever they can get.

Should a larger share of homes in the auction phase end up with banks and mortgage companies, that would indicate a troubling weakness in Colorado's home market.

Such a surge could put additional pressure on markets where the number of unsold homes has swollen.

"If that number starts to spike, that is a red flag," said Rick Sharga, a vice president with RealtyTrac, a California company that tracks foreclosures through public records.

Most of the homes that are in the auction process don't end up with lenders, because either homeowners find a buyer or investors step in and pay off the mortgage, Sharga said.

One of every 339 homes in Colorado is in foreclosure, but the percentage of homes owned by lenders is below the national average of 19.6 percent, Sharga said.

In the past 12 months, the inventory of unsold homes in the seven-county metro area has gone from about 23,000 to more than 27,300, said Mike Rinner, a senior real-estate analyst with the Genesis Group in Englewood.

Should buyers not step up in sufficient numbers over the coming weeks to purchase the homes in foreclosure, lenders could be forced to unload them at below-market prices. That would make it more difficult for other home sellers to get their asking price, lengthen the time homes spend on the market and cause the already-high count of unsold homes to grow.

Entry-level housing markets away from job centers such as the Denver Tech Center, downtown Denver and the Boulder corridor have proved the most vulnerable, Rinner said.

Adams and Arapahoe counties are suffering the highest foreclosure rates in the state, while higher-end markets such as Boulder and Douglas counties are holding up much better.

A foreclosure can take about six months, and many lenders are willing to work with homeowners to keep them in their homes or get them out with the least damage to both sides.

"The saddest thing I see is that people don't know they have options," said Lori Strange, director of planning and resource development at the Adams County Housing Authority.

The U.S. Department of Housing and Urban Development, for example, is willing to take whatever proceeds a homebuyer can get in a sale, even if it doesn't cover the mortgage.

originally published April 26, 2006