Where Will Home Prices Rise The Most? Check The Law.

What is really behind the sharp drop in inventory levels? The non-judicial foreclosure process used in most Western markets has allowed lenders to efficiently clear the distress, while at the same time facilitating strong investor activity and a home price recovery. Ironically, the judicial foreclosure process, which was designed to protect homeowners, is delaying the recovery in those markets.

• Markets with the strongest price appreciation are in non-judicial-foreclosure states. Areas where laws allow banks to clear distressed homes without lengthy court proceedings are recovering the most quickly. Markets like Phoenix, San Francisco, Denver and San Diego have seen prices surge 10% – 20% over the last year. Lenders in these markets have already seized and resold a large quantity of distressed properties, whereas those in judicial-foreclosure states are still navigating the foreclosure process.
• The foreclosure process takes up to 3 times longer in judicial states. Nationally, properties foreclosed in 3Q12 took an average of 382 days to complete the foreclosure process. However in judicial states, the process averages closer to 500 days and even longer in some jurisdictions. In Florida and New York, the foreclosure process can take up to 3 years, which is considerably slowing the eradication of distress in these markets.
• The relatively quick foreclosure process in non-judicial markets has helped to sharply reduce the levels of resale inventory. Months of resale supply currently ranges from 1 – 4 months in most major non-judicial markets, well below the historical average of 6 months. In many prime submarkets, limited resale inventory is even causing bidding wars where homes are sold well above asking prices. In summary, prices are appreciating rapidly in many of the Western markets where foreclosures have cleared, prices have risen, and “boomerang” buyers (those with solid incomes who lost their home to foreclosure 3+/- years ago) have returned.