U.S. foreclosure activity in June decreased 3 percent from the previous month but was still up 53 percent from June 2007, according to the RealtyTrac U.S. Foreclosure Market Report released today. The 3 percent decrease may lead some to speculate that the upward trend in foreclosure activity may be nearing an end, but as RealtyTrac CEO James J. Saccacio pointed out in a statement, the year-over-year change is a more indicative number of the overall trend.

"The year-over-year increase of more than 50 percent indicates we have not yet reached the top of this foreclosure cycle," he said.

In fact, the RealtyTrac report has shown month-to-month decreases in previous months, even during the dramatic run-up in foreclosure activity that has occurred over the past year and a half: in February 2008, November 2007, September 2007, June 2007, April 2007, and February 2007.

What may be a better argument -- although certainly not an ironclad case -- that the foreclosure surge is starting to run out of steam is the trend over the past 18 months in YOY percentage changes, broken down by type of foreclosure filing. As can be seen in the chart below, the default and auction categories experienced double- and triple-digit YOY percentage increases for much of 2007. But the increases in those categories started to slow down in 2008. Meanwhile, REO (bank repossession) activity actually decreased on a YOY basis in January and February of 2007 but gradually started to gain momentum in the second half of 2007, and increases in REOs have far outpaced the increases in defaults and auctions in all six months of 2008.

One could argue that this chart shows that the bulk of the properties that were at risk for foreclosure have migrated through the process and are now being repossessed by the foreclosing lenders. There is not a continued massive surge in defaults and auction notices, so once the lenders have disposed of their REO inventory, the real estate market can start to return to normal. On the other hand, some might argue that many properties are still at risk for falling into foreclosure, but the default notices against those properties may have been delayed by artificial means -- for example laws in Colorado, Maryland and Massachusetts requiring lenders to give homeowners more time before initiating foreclosure. Those artificial means may just temporarily be forestalling another wave of defaults that we'll see sometime in the coming months.

We'd like to hear if you buy into either of these theories or have another theory of your own that explains the foreclosure trends.