Interesting Times

By Nick Timiraos, Wall Street Journal

Have foreclosure moratoria—which artificially depressed foreclosures in the fourth quarter of 2008—provided a false sense of security that the worst of the foreclosure tidal wave has passed?

Notices of default in California have spiked in recent months, as more foreclosures have moved their way through the pipeline. A state law had decelerated foreclosures at the end of 2008 and in early 2009. But foreclosures jumped by 40% in April from March in the Golden State, and foreclosure could double or triple this month, according data tracked by The Field Check Group, a Menlo Park, Calif.-based research firm, and ForeclosureRadar.com.

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That’s raising some concerns of a false bottom in foreclosure inventory. Home Depot Chief Executive Frank Blake said that accelerating foreclosures during the first quarter, particularly in the western United States, had reversed gains in same-store sales that the home improvement retailer had seen in the fourth quarter, when foreclosures had decelerated. The reverse offered a “cautionary note on signaling a recovery prematurely,” Mr. Blake said on an earnings conference call on Tuesday.

Housing construction is expected to reach a bottom later this year, though economists see price declines continuing until next spring.

Still, single-family housing starts rose by 2.8% in April from March, the second straight monthly increase. While any rebound is likely to be modest, the numbers suggest that “housing activity may still be close to a floor, if it hasn’t reached it already,” writes Paul Dales, U.S. economist for Capital Economics.