Call it the blight of the living dead: one in every four American homes in foreclosure is a “zombie”: properties abandoned by their owner, and not yet owned by the foreclosing mortgage holder.
In California, the “zombie” share of all foreclosures rose in the first quarter (Q1) of 2015 at 7,400, according to RealtyTrac. This increase mirrors the trend in overall foreclosure starts. RealtyTrac reports just over one tenth of one percent of homes in California are in some stage of foreclosure as of January 2015.
But despite RealtyTrac’s report and the media fanfare , zombie foreclosures just aren’t a big deal in California. (Unlike in Florida.) Here’s why:
First, an increase in zombie foreclosures doesn’t mean an increase in mortgage defaults. Rather, it points to mortgage holders moving through backlogs of black hole assets abandoned by homeowners in the aftermath of the mortgage crisis.
Second, California has around 5,000,000 owner-occupied mortgaged homes, according to estimates by the U.S. Census Bureau. 7,400 unoccupied foreclosures is just one in every 675 mortgaged homes —0.15% of all mortgaged homes in California. This is small next to the nearly 400,000 annual home sales seen in California in 2013, 2014 and projected for 2015.
Third, new jobs in California are growing at an amazing rate — 488,000 annually with nothing in sight to slow this action down. This growth is in post-recovery jobs, above and beyond the peak employment level when the recession took hold in December 2007. These job numbers suggest we need a lot more available housing to temper the increase in housing costs. Right now, one-third of an employed individual’s income is spent on shelter.
In fact, we’d even argue zombie foreclosures are a good thing, coming from an intolerable situation. Zombie foreclosures mean more underwater homeowners have found their way out of the pre-foreclosure labyrinth and into solvency. They’ve opted to escape from their black-hole assets, and their properties are closer to becoming real estate-owned (REO) resales. More of lender shadow inventory coming into the light —though this is small compared to the other type of shadow inventory: speculator-owned properties that were purchased to be flipped for a profit, not owned primarily for their rental income.
At the local level, more REO properties entering the market may make some waves in communities hit particularly hard by job loss and the foreclosure crisis, such as the Inland Empire and Central Valley. Unoccupied low-tier properties reaching the MLS do reduce neighborhood blight in working class communities which saw a disproportionately high number of foreclosures during the Great Recession.
On a wider scale, not nearly enough zombie inventory exists to shake up any part of the California housing market. A few thousand zombie foreclosures coming to market over a nine month foreclosure period won’t exert the downward price pressure needed to bring low-tier home prices closer to the historical mean and get sales volume and broker fees up to average annual levels.
In other words, keep your zombie Armageddon preparedness kits tucked away: nothing to see here.
