The number of homes in Hamilton County lost to foreclosure dipped last year for the first time in six years.
But real estate experts aren't ready yet to declare the housing slump over.
After local foreclosures tripled in number in the 10-year-period ending in 2009, the number of properties lost to foreclosure by lenders dropped by 6.1 percent last year, according to filings with the Hamilton County Register of Deeds.
But don't plan on that decline continuing. Experts foresee a nationwide increase in foreclosures again in 2011, which could further depress the value of many properties.
Economists said much of the decline in foreclosures last fall stemmed from the suspension of foreclosure activity by Bank of America and other major banks accused of "robo" signing foreclosure papers -- signing the papers without reading them and making sure they were in legal order -- and not following proper procedures to reclaim property with loan defaults.
After reviewing and, in some instances, improving their procedures, most banks resumed foreclosure proceedings in mid-December. Many of those actions could bring evictions and distressed sales this winter, economists said.
"The housing correction is certainly not over with, and the decline we saw in foreclosure activity late in 2010 was probably because of banks slowing down or putting a moratorium on many foreclosures until they were able to verify the procedures they were using," said Sunayana Mehra, an economist for Moody's Analytics in West Chester, Pa. "We don't expect foreclosures to significantly decrease until the fourth quarter, when the job market should start to get better."
In Chattanooga, Moody's economist Alex Miron said foreclosures should drop late this year by much more than the U.S. average because of higher-than-average economic growth in Chattanooga.
"With the Volkswagen factory getting started and other suppliers and manufacturers in the area, I'm expecting job growth in Chattanooga to surpass the national average this year," he said. "Home prices will probably continue to fall some this year, but they should rebound next year."
With a more stable market, the foreclosure rate in Chattanooga last year was far below those in once high-flying real estate markets in Nevada, Arizona, Florida and parts of Georgia, according to RealtyTrac, an online service that follows foreclosure activity nationwide.
In its latest report, RealtyTrac estimates that one of every 1,063 houses in Tennessee were in foreclosure in November, or less than half the national rate of a foreclosure for every 492 homes in the same month.
RealtyTrac President James J. Saccacio said November foreclosures dropped 21 percent nationwide. But most of that was because of a temporary suspension of foreclosures until banks reviewed their processes in the wake of court challenges to their foreclosure actions.
"The foreclosure robo-signing controversy forced lenders and servicers to hit the pause button on many foreclosures while they scrambled to revamp their internal procedures and revise or resubmit questionable paperwork," he said.
Chattanooga fares better
Chattanooga was not as overbuilt as many other markets going into the recession three years ago and doesn't have as big of an inventory of foreclosed properties yet to sell, officials say.
While foreclosed properties comprised more than 27 percent of Chattanooga area home sales last year, only 7 percent of the current real-estate listings involve foreclosed properties.
"At this point, I don't think the foreclosure problem is going to be any worse and Chattanooga is better positioned than many markets," said Jennifer Grayson, the new president of the Chattanooga Association of Realtors. "We're getting back to a slow and steady market."
Overall, home sales last year were comparable with 2002, Grayson said.
But some of those sales are coming with lower prices.
Travis Shipley, a Chattanooga Realtor who generated more than half of his home sales last year on foreclosed properties, said banks often are settling for much lower prices for foreclosed properties because such properties often are in a distressed condition and the bank needs to sell more quickly than most sellers to reclaim their money.
Typical of the drop in prices for foreclosed properties is a four-bedroom home at 7136 Blossom Circle in Ooltewah, which is listed at $139,823, or 22 percent less than what it sold for just four years ago when it was built. The actual sales price could end up even lower if the house follows the normal selling pattern for foreclosed properties.
"A lot of homes foreclosures were pushed back this fall," Shipley said. "I think there is probably going to be one last run of these foreclosures before the downturn is over."
subprime loan fallout
The biggest discounts on sales are for empty residential lots in subdivisions where few, if any, home have been built, according to Chattanooga real estate appraiser Henry Glascock.
By the numbers
27 -- Percentage of Chattanooga homes sold in 2010 that were in foreclosure
7 -- Percentage of Chattanooga multiple listing service properties now in foreclosure
32 -- Percentage of discount for which the average home in foreclosure sold last year below the average price of U.S. homes not in foreclosure.
Sources: Hamilton County Register of Deeds, RealtyTrac
Such so-called "PVC farms" -- named for the white PVC water and sewer hookups showing above the ground with no buildings attached -- often sell for only 20 percent of what the original developer invested in the properties, Glascock said.
"There's no question that foreclosures and the publicity that they have garnered in the past couple of years have had a big effect on the attitude of buyers and the prices they are willing to pay," Glascock said. "But the amount of that impact really varies according to where the home is located and what condition it is in."
The market is still working through the jump in 2005 in the number of subprime mortgages made to borrowers with lower credit ratings. Such loans often have lower down payments but higher interest rates and tend to result in more foreclosures, according to a housing study released last week by the Ochs Center for Metropolitan Studies in Chattanooga.
In 2005, the number of subprime mortgages in Hamilton County nearly doubled to 1,274 loans. That number fell to only 483 two years later, however.
The housing slump also cut the number of builders belonging to the Home Builders Association of Southern Tennessee from more than 200 five years ago to only 155 today.
"We're hoping 2011 is a better year, but I think it just depends upon the job market and consumer confidence," said Teresa Groves, executive director for the local homebuilders group.
Contact staff writer Dave Flessner at 757-6340 or at firstname.lastname@example.org.