Mortgage Defaults Expected to Grow
In another sign that California’s real estate boom may be peaking, the state’s foreclosure activity has bottomed and is expected to rise, new data suggest.
After declining for nine straight years, the number of default notices sent to delinquent homeowners continued to level off during the second quarter, real estate research firm DataQuick Information Systems said Friday.
The reason: The state’s real estate cycle is maturing and price increases are slowing.
“We’re currently at a floor level,” said John Karevoll, DataQuick’s chief analyst. “Any movement now is going to be up.”
A default notice is sent to a homeowner as the first step in a formal foreclosure process.
Over the last year, the level of default notices has “bounced along the bottom,” Karevoll said. It hit a low in the third quarter of 2004, when defaults fell to 12,145. They started to tick up during the final quarter of 2004 and the first quarter of 2005.
But foreclosure activity edged lower again during the April-to-June quarter, when lenders sent default notices to 12,408 California homeowners. The number of notices in the second quarter was virtually flat with the year-ago period.
Default notices peaked in 1996’s first quarter at 59,897.
Southern California saw a slight increase in foreclosure activity in the second quarter, while the San Francisco Bay Area and the Central Valley experienced small decreases.
Some foreclosure activity is expected even in the hottest real estate markets, Karevoll said. But over the last 18 months, the level has been “unnaturally low.”
That’s because rising home prices allowed distressed homeowners who couldn’t meet their mortgage payments to sell their properties without taking a loss. As the rate of appreciation continues to slow, more homeowners won’t be able to get out from under their debt before their lender forecloses on them, Karevoll said.
Since last year, home prices have continued to rise but at a slower rate. California’s median home price increased 16.7% in the second quarter to $433,000, slower than the gain in the year-earlier quarter of 22.8%, DataQuick said. The median price is the point at which half of all homes sell for more, half for less.
Historically, only about 10% of homeowners who receive a default notice actually lose their homes to foreclosure. But with wider use of higher-risk mortgages, such as “interest-only” loans, analysts expect foreclosure rates to creep higher.
