Home Foreclosures Jump 19% Despite Market Rebound
The number of home foreclosures in California jumped nearly 20% last year in a sign of continued and widespread financial hardship facing many homeowners, according to a real estate survey released Tuesday.
The surge in foreclosures--which contrasts sharply with a turnaround in the statewide real estate market--was blamed on a wide variety of factors, ranging from increased levels of consumer debt to greater aggressiveness on the part of lenders to quickly deal with problem loans.
“The recent rise in property repossessions could well be reflective of lenders’ willingness to foreclose on delinquent loans more swiftly than before, but it is also a symptom of deteriorating quality of the mortgages being originated,” said Nima Nattagh, a market analyst with Experian, the Anaheim-based real estate information firm that conducted the survey.
However, many real estate industry observers say the rise in foreclosures is not a sign of future weakness in the housing market.
“Foreclosures are a lagging economic indicator,” said Jack Kyser, chief economist for the Los Angeles County Economic Development Corp. “You still have a lot of people hurting” and falling into foreclosure.
More than 92,000 foreclosed properties with a combined mortgage value of $13.8 billion were sold last year, a 19% jump from 1995, when the inventory of foreclosed homes had stabilized after swelling rapidly for several years, according to Experian.
Several economists and housing experts were at a loss to explain the surge in foreclosures last year.
“I’m a little surprised,” said Esmail Adibi, director of the Center for Economic Research at Chapman University. “Maybe it is a case of the financial institutions saying enough is enough.”
John Donohue, chief of lending operations for American Savings Bank, said his savings and loan has not changed its policy on foreclosures in the last two years. However, he said the improvement in the state’s real estate market might have motivated some lenders to be more receptive to a foreclosure sale.
As property values stabilize and rise, lenders of foreclosed properties “will be in a better position to sell and [receive a] greater return,” Donohue said.
Richard Yates, a Coldwell Banker agent in Mission Viejo, said banks are more willing to invest time and money to improve foreclosed properties--such as installing new carpeting and landscaping--to fetch a better selling price. “They are not looking just to unload the property,” he said.
Many home sellers and brokers have blamed the sales of foreclosed homes for dragging down neighboring property values in recent years. A previous Experian study showed that a typical lender-owned home in Los Angeles and Orange counties sold last year for 3.9% less than its market value.
Walnut real estate broker Michael Li said home appraisals once excluded foreclosure homes as abnormal. Now, in many hard-hit neighborhoods, foreclosed homes make up the majority of sales. In addition, many homeowners now work out agreements--called short-pays--with lenders to sell their homes for below the amount of their mortgage.
“There are not that many sales that are just [regular] sales anymore,” Li said.
However, many real estate and economic experts say the worst might be over as far as foreclosures go.
“One would expect that the foreclosure levels will go down as the economy improves,” Adibi said. “My expectation is that the peak is over.”
Many brokers also say they have noticed a sharp decline in the number of foreclosed homes hitting the market.
“Last year they were rampant,” said Linda Semone, a real estate agent in Santa Monica. “But I’m not seeing as many now.”
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Foreclosure Growth
The greater Los Angeles area is responsible for a large chunk of recent California real estate foreclosures. In thousands of foreclosures:
California total: 92,120
S. California: 69,628
Source: Experian
