Higher Home Prices Slowing California Foreclosure Activity

Whilernforeclosure starts in California bumped up in the secondrnquarter, the number of homeowners entering foreclosure in that staternwas at the second lowest rate in seven years DataQuick reportedrntoday. The San Diego-based company attributed the increase more to arndepressed rate of activity in the first quarter than to any realrnincrease in the second. A cluster of new foreclosure laws, thern”Homeowner Bill of Rights” took effect in the state on January 1rnand DataQuick speculated that the industry took a while to adjust tornits requirements. </p

Lendersrnfiled 25,747 Notices of Default (NODs), the first step in arnCalifornia foreclosure, during the second quarter, a 38.7 percentrnincrease from the first quarter. The NOD filings however representedrna 52 percent decline from the 54,615 that were filed in the secondrnquarter of 2012. </p

Thern18,568 filings in the first quarter were the lowest since thernfourth-quarter of 2005 and, setting aside the first quarter an anrnanomaly, the second quarter was the lowest since the second quarterrnof 2006 when 20,909 NODs were filed. NOD filings peaked in the firstrnquarter of 2009 at 135,431. DataQuick said that, beyond the effectrnof policy and regulatory changes, the low level of foreclosure startsrnthus far in 2013 reflect less distress in the housing market pipelinernand a steep increase in housing prices.</p

“Atrnthis point in the cycle, it’s fairly straightforward to see what’srngoing on. Just do the math – it’s not calculus, it’s 4th gradernarithmetic. A foreclosure only makes sense when the home is worthrnless than what is owed on it. As home values rise, fewer homeownersrnowe more on their homes than the homes are worth,” said JohnrnWalsh, DataQuick president.</p

Thernmedian price of a home sold in California during the second quarterrnwas $344,000, up 14.7 percent from the first quarter and 27.4 percentrnfrom the second quarter of 2012. The median price in the staternpeaked in second-quarter 2007 at $485,500 and hit bottom at $235,000rnin second-quarter 2009, DataQuick reported.</p

Foreclosurernactivity continued to correlate with home prices. In Zip Code areasrnwhere median sales prices were below $200,000 there werern(collectively) 4.2 NODs filed for every 1,000 homes. The ratio wasrn2.8 NODs per 1,000 homes for Zip Codes with $200,000-to-$800,000rnmedians, and 1.1 per 1,000 homes for the group of Zips with mediansrnabove $800,000. The same pattern was evident for completedrnforeclosures.</p

Mostrnof the loans going into default are from the 2005-2007 period and thernmedian origination quarter for defaulted loans was, as in thernprevious four years, the third-quarter of 2006. Wells Fargo was thernbeneficiary of the most filings(3,969) followed by JP Morgan Chasern(3,801) and Nationstar (2,565).</p

TrusteesrnDeeds recorded (TDs), or the finalized loss of a home to the formalrnforeclosure process, totaled 9,840 last quarter, down 27.6 percentrnfrom 13,592 in the prior quarter and 55.0 percent from 21,851 onernyear earlier. The second quarter marked the first time there werernfewer than 10,000 foreclosures in a quarter since 2006. Foreclosuresrnpeaked at 79,511 in third-quarter 2008. </p

Thernaverage foreclosure took 9.1 months from NOD to Trustee Sales, uprnfrom 8.1 months in Q1 and 7.7 months a year earlier. DataQuickrnestimates that 54.2 percent of foreclosed properties were bought byrninvestors or others that don’t appear to be lender or governmentrnentities, a substantial increase from 47.4 percent in Q1 and 39.2rnpercent a year earlier. Foreclosure resales accounted for 11.6rnpercent of all home sales activity, down from 27.8 percent a yearrnearlier and short sales were down 24.0 percent over the same period.

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