report released this week by mortgage technology company FNC indicates that the foreclosure market has improved dramatically in recent months, with foreclosure rates nearing pre-crisis levels. According to FNC’s Director of Research Yanling Mayer, the Foreclosure Market Report reflects rising home equity for homeowners who are trading up to more expensive houses.

“We’ve seen hard data from the past 18 months that shows rising home prices and a foreclosure market with diminished impact due to decreasing foreclosure inventories and fewer new foreclosure filings,” Mayer said. “Meanwhile, a very encouraging trend that has been developing is the rising participation of trade-up buyers who are seeing improving home equity position and positive capital appreciation on existing homes.”

Mayer went on to say that the developments are a sign of a “healthy and sustainable recovery,” since trade-up buying represents discretionary spending. “These buyers are typically more responsive to market conditions and financial incentives,” she said.

According to the report, foreclosure price discounts have dropped to a 10-year low of about 8.1 percent in Q2 2013. This represents a 12.5 percent decrease from one year ago. “At the height of the mortgage crisis in 2008 and 2009, foreclosed homes were typically sold at close to 25 percent below their estimated market value,” Mayer said. “In many fast-rising markets, such as Phoenix, Las Vegas, and California, investor activity and low foreclosure inventory drove prices up, frequently resulting in a price premium relative to estimated market value.”

Foreclosed property continued to be a profitable and popular investment, with a 7.8 percent average gross capital appreciation on their sales. The average ownership duration of all existing home sales was higher this quarter as well

Michigan continues to have the nation’s most distressed housing market, according to the FNC report. Arizona, California, Nevada, and Oregon have seen the fastest declines in foreclosure rates. States with increasing foreclosure rates in recent months include Alabama, Illinois, Michigan, Ohio, Rhode Island, South Carolina, and Tennessee.

By Hugh Moore