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Foreclosures are not going away.  RealtyTrac said late last week that foreclosure filings in May were up 48 percent from a year ago. One in every 483 mortgage households received a foreclosure filing during the month of May.  RealtyTrac's foreclosure filings include default notices, auction sale notices and bank repossessions. In May, they were at the highest level they've been since RealtyTrac began tracking them in January 2005.  May was the 29th straight month of year-over-year growth in foreclosure activity.

A week earlier, the Mortgage Bankers Association said the more than 1 million home owners who faced losing their home in the first quarter this year was the greatest number since the association began compiling figures nearly 30 years ago.  In the association's report, about 2.5 percent of home mortgages were in foreclosure during the first quarter. That was up from nearly 1.30 percent a year ago.  Another 6.4 percent of home mortgages were delinquent, but not yet in foreclosure. Last year it was only about 4.8 percent, the association reported.

RealtyTrac said Nevada, California, and Arizona had the highest state-level foreclosure rates.  The bankers association said the problem isn't just adjustable rate mortgages (ARMs) resetting to high rates. More than 60 percent of the loans entering foreclosure are adjustable-rate mortgages, but many of the loans went into default before the rates reset meaning homeowners were unable to pay the rate initially set.  Homeowners with tarnished credit who have subprime loans with adjustable rates were hardest hit.

The growing abundance of foreclosures is pushing down home prices, but tight credit, generated by so many failing loans, continues to make it tough for many to get approved for a home mortgage.  Interest rates have also been edging up.  It's a vicious circle.

A modest gain in the level of home sales is possible over the next couple months, and an improvement is forecast for the second half of this year as more buyers are able to access affordable mortgages, according to the National Association of Realtors^®.

The Pending Home Sales Index,* a forward-looking indicator based on contracts signed in April, rose 6.3 percent to 88.2 from a reading of 83.0 in March. It’s the highest index since last October, but remains 13.1 percent lower than April 2007 when it stood at 101.5.

Lawrence Yun, NAR chief economist, said pending sales contracts have picked up notably in areas undergoing significant price drops. “Bargain hunters have entered the market en masse, especially in areas that have experienced double-digit price declines, but it’s unclear if they are investors or owner-occupants,” he said.  The PHSI in the West rose 8.3 percent to 98.8 in April and is 4.0 percent higher than April 2007.

NAR President Richard F. Gaylord, a broker with RE/MAX Real Estate Specialists in Long Beach, Calif., said the market may be breaking its holding pattern. “It appears that more buyers are realizing they can take advantage of a favorable combination of mortgage interest rates, home prices and family income,” he said. “Overall affordability conditions are the best we’ve seen since the middle of the housing boom in 2004.

“Although mortgage interest rates will remain historically favorable, they will start to steadily inch up,” Yun said. The 30-year fixed-rate mortgage should rise gradually to 6.3 percent by the end of this year, and then hold at that level for most of 2009.

Yun said the underlying fundamentals point to a pent-up demand.  “Sales gains will be greatest in areas that underwent sharp price declines,” Yun said.  After unprecedented home price declines in the first half of the year, many markets can anticipate stabilizing price trends in the second half.

*The Pending Home Sales Index is a leading indicator for the housing sector, based on pending sales of existing homes. A sale is listed as pending when the contract has been signed but the transaction has not closed, though the sale usually is finalized within one or two months of signing.