Headwind to Housing Recovery? Foreclosures Flare-Up Again

In California, foreclosures slowed dramatically last year due to a new law designed to protect homeowners, the California Homeowner Bill of Rights, and due to the $25 billion National Mortgage Settlement with mortgage servicers over so-called "robo-signing" foreclosure paperwork fraud. In February, new foreclosure starts jumped 41 percent, the first gain since July of 2012.

While the percentage jump is large, in a twist, some argue the foreclosure delays still persist and are hurting the recovery.

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"While policy makers state that the purpose of government intervention is to help homeowners by delaying foreclosures, instead they have created an artificial shortage in bank-owned inventory (REO). The combination of the decline in REO inventory and lack of motivated sellers has left the California real estate market with an acute lack of inventory, which is putting upward pressure on prices," say analysts at ForeclosureRadar.

(Read More: REO: CNBC Explains)

While price gains help recovery, if they happen too fast, they price would-be buyers and investors out of the market, which slows sales again. Price recovery has many believing that housing is suddenly not just back on its feet again, but surging ahead?much of the price recovery is based on lack of inventory of homes for sale, which in turn is due to foreclosure delays, which as we now see, can turn very quickly.

?By CNBC's Diana Olick; Follow her on Twitter @Diana_Olick or on Facebook at facebook.com/DianaOlickCNBC

Questions? Comments? RealtyCheck@cnbc.com

Source: http://www.cnbc.com/id/100553116

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