Real estate data companies that track CA foreclosure and how they impact the market have revealed that the number of defaults in the state is in a state of decline. Are we seeing the beginning of a recovery in California’s housing market or is it a mirage in the desert?
Right now analysts are saying that one reason for the significant decline in foreclosure auctions may be anticipation over the Obama Administration’s plan to expand a mortgage modification program. It would encourage so-called short sales. That’s when a property is sold for less than what’s owed on the loan. RealtyTrac’s Daren Blomquist:
“That’s one theory of why these defaults may be trending a little bit down is some lenders are anticipating that short sale program and maybe are not as quick to file the initial notice of default.”
ForeclosureRadar, a company that tracks the market trends of CA foreclosures reported that foreclosure activity reported figures released Tuesday indicating a continuation of a trend seen played out over the past several months: Large numbers of homeowners are falling behind on their mortgage payments but the lenders are forestalling foreclosure proceedings while they make an attempt to work out some type of loan modification or, if the homeowner is unemployed or otherwise unable to make any type of reasonable payment, attempt to avoid a foreclosure by selling the home on a short sale.
This development is attributed in part to the push by the Obama administration to expand mortgage modification programs which is set to encourage short sales (the sale of a home for less than the amount owed) instead of pouring tends of thousands of additional CA foreclosures into an already troubled housing market.
Even foreclosure activity in the third quarter was down from the previous three-months, it was still close to 19% higher than the same time period in 2008. Fully One in every 53 housing units in California got a foreclosure notice between the months of July and September alone. The large number of CA foreclosures indicates that the state continues to have one of the highest default rates in the nation, falling just behind Nevada and Arizona.
Sean O’Toole of ForeclosureRadar reported that CA foreclosure filings in September were about the same as August. They were higher than the previous September because a state law went into effect September 2008 requiring lenders to contact borrowers before filing notices of default.
Inline with the beliefs of Darin Blomquest, Mr. O’Tool also feels that banks, under pressure to modify loans under the Obama administration’s Home Affordable Modification Program, are delaying foreclosure proceedings resulting in an estimated 500,000 loans are in a three-month trial modification phase as reported by the administration last week.
This couldn’t come at a better time, said O’Toole, because about 900,000 California homeowners are unable to make their payments and between 2 million and 3 million are underwater — that is, they owe more than their home is worth.
Some areas of California have been able to buck the trends. In Santa Clara County lenders foreclosed on 415 homes last month. That was down about 5 percent from August and sharply fewer than the 650 properties foreclosed on by banks in September 2008. Of these, 109 homes were sold at auction to third parties and the remaining 306 were taken back by the lender and added to the supply of CA foreclosures.
At the same time, lenders filed 1,257 notices of default (NOD), the first step in the foreclosure process, and 1,027 notices of trustee sale, the last step in the foreclosure process before the actual sale of a foreclosed home. August figures were almost identical.
Looking forward a total of 4,131 homes were in the process of foreclosure in Santa Clara County in September, a figure that has been growing steadily for much of this year.
As to where sales volume and prices are headed, MDA DataQuick said that September marked the 15th straight month of year-over-year sales increases and that a 0.2 percent increase in sales from August was atypical, as transactions usually drop 9.5 percent from August to September. The research company says that the boost in sales likely can be attributed to those taking advantage of the federal tax credit for first-time homebuyers which is set to expire next month.
Sales climbed from a year earlier in four counties and fell 5.3 percent in Riverside County and 3 percent in Ventura County. Los Angeles County had the biggest rise, with its sales increasing 14 percent, MDA DataQuick said. In contrast, they also reported that Southern California house and condominium prices fell 11 percent in September from a year earlier as foreclosures dominated sales.
Dataquick published that the median price dropped from a year earlier in all six Southern California counties except Orange County, where the median rose 0.9 percent to $429,000. Overall the median price for existing homes dropped to $275,000 from $308,500 a year earlier, the San Diego-based research company reported and also stated that the number of homes sold rose 5.1 percent from a year earlier to 21,539 in Los Angeles, Riverside, San Diego, Ventura, San Bernardino and Orange counties. San Bernardino took the largest hit, with median values falling fully 27 percent to $150,000!
The information provided by RealtyTrac, ForeclosureRadar, and Datauick seemed to point to a slowing trend in CA foreclosures. This is a breath of fresh air for homeowners falling behind on their loan payments, but bad news for people shopping for a home as the decline in foreclosures has pinched the supply of homes for sale.
Taking both foreclosure rates and sale activity into mind it appears that the rate of CA foreclosures has managed to remain low throughout the state in the short run reflected over the past few months. Unfortunately, the number of families about to lose their homes has more than doubled from a year ago.
This means that millions of California homeowners are left clinging to nothing more than the hope that the Obama mortgage modification plan will work as planned. If it does not, a new wave of CA foreclosures could flood an already battered market. As to whether or not the plan will be effective is anyone’s guess as bank’s recent performance has failed to demonstrate their ability to process large numbers of loan modifications at a pace fast enough to exceed the number of people going into default each month.