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IRVINE, CA—Markets in judicial states including Ohio, New York, New Jersey, Maryland and Pennsylvania are feeling the effect of deferred distress in negative home price appreciation, RealtyTrac's VP Daren Blomquist tells GlobeSt.com. As we reported recently, RealtyTrac released a report that shows a 5% drop in residential foreclosure filings nationally in Q3 from the previous quarter, but a 3% rise in filings from the third quarter of 2014. We spoke exclusively with Blomquist about the effects of deferred distress in some markets and how it reflects on the health of the residential sector overall.

GlobeSt.com: How much of an impact do you believe deferred distress will have on home prices in the states where this distress is more prevalent?

Blomquist: We're already seeing home price appreciation start to go negative in some of these markets. Out of 32 major markets with at least 10,000 sales of single-family homes and condos so far in 2015, the average sales price is actually down in seven of those (22 %). Those include markets in Ohio, New York, New Jersey, Maryland and Pennsylvania—all judicial states more likely to have properties with deferred maintenance lingering in the foreclosure process for years that just recently have started hitting the market this year.

GlobeSt.com: What other headwinds does the residential sector face in the near future?

Blomquist: Affordability. About one-fourth of US markets require an average wage earner to spend 43% or more of his or her income to buy an average-priced home, and that jumps to about one-third of US markets if interest rates rise another 25 basis points in the first quarter of 2016 (assuming prices and wages continue to rise at the same rate). Additionally, in some markets more heavily dependent on foreign cash buyers, volatility in the global economy could hurt those markets if it causes those buyers to back down on their purchases. And lastly, sustained growth in the housing market requires continued and accelerating growth in the overall economy, trickling down to wage growth. If we see economic growth stall and wages stagnate, that could stall housing market growth.

GlobeSt.com: What is causing the significant rise in bank repos over a year ago?

Blomquist: A combination of three factors. Banks wrestling with additional rules and requirements to foreclose that were instituted during the housing crisis are finally figuring out how to navigate those rules and requirements for some of the harder foreclosure cases, particularly in judicial states. Second, banks are realizing now is an opportune time to sell given rising prices and shortage of inventory. And third, some of the non-banks who have purchased nonperforming loans over the past couple of years are past the required waiting period to foreclose and are foreclosing on those loans if they have not been able to get them to perform.

GlobeSt.com: What else should our readers know about the health of the residential sector?

Blomquist: Residential real estate is not as strong as it has appeared over the last three years of recovery, which has been boosted by record low interest rates and home prices overcorrected on the downside, along with strong demand from institutional investors and foreign buyers along with other cash buyers not constrained by income. But, as several of those boosters fall away (interest rates rise, demand from the cash buyers decreases), we will see home prices plateau in a best-case scenario. Sales volume is more likely to keep rising as demand should remain strong from traditional, financed buyers looking to buy before interest rates go up too far, but there is not much ceiling left in price appreciation in the short term until we see more upward movement in wages.

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