Harris County foreclosures level off

Though foreclosures in Harris County sold at auction in July totaled 885, down 6 percent from 938 during the same month last year, the numbers don't necessarily signal the start of a downward trend.

"It's been basically at this level for this year and we probably have seen the worst of it, but to say when it's going to significantly come down, you basically want to see foreclosures running at 300 to 350 a month before we're out of the woods," said Barton Smith, a University of Houston professor of economics. "And we're nowhere near that yet."

Foreclosures in Harris County began to take off in June 2006 and have totaled about 1,000 a month since then. Smith noted that the uptick happened in tandem with the national rate of foreclosures.

Lenders cut back

Foreclosures can happen for a variety of reasons — divorce, mounting medical bills or job loss — but recent problems have been concentrated among those homeowners who had so-called subprime loans.

Subprime loans are marketed to home buyers with poor credit ratings and tend to have higher rates. Many subprime loans are also adjustable-rate mortgages that are now resetting at higher rates.

In recent years, borrowers have had access to an unprecedented variety of products: low or no down-payment loans, interest-only loans, adjustable-rate mortgages, low documentation loans and 100 percent financing.

Lenders have cut back on making such loans in the wake of rising foreclosures and the issuance of stricter guidelines from regulators, but that doesn't mean foreclosures are about to decline anytime soon.

'The final blow'

In 2006, Harris County had 9,537 foreclosures, according to the listing service. With 6,624 foreclosures in the first seven months of this year, the area is on track to surpass last year's total.

Smith doesn't think foreclosures will decline until sometime next year. There are still plenty of subprime mortgages that haven't defaulted yet, he said, but many of them will likely go under.

"Also, a lot of the adjusted-rate mortgages will get their final boost early next year, and that will kind of be the final blow to marginal loans," Smith said.

Consequently, he said, rising interest rates and a slowing real estate market may leave many delinquent borrowers with few options other than foreclosure.

Ralph Murdock of The Woodlands-based listing service noted that the number of homes posted for the August foreclosure sale totaled 2,700 — the highest one-month total since September 1998.

Posted homes are sold at auction on the first Tuesday of every month and once sold are officially counted as foreclosed by the listing service.

"I do expect a continuing gradual rise year over year for at least another year or two," he said.

Little noticeable effect

So far, foreclosures have had little visible effect on the housing market, said Mike Inselman of Metro Study.

Investors and bargain hunters have been scooping up foreclosed homes so quickly that the homes aren't having to be discounted.

"Houston has always had a relatively large group of investors who buy houses and keep them and rent them out, and they'll own 10 of them," he said. "And that makes sense for the Houston market."