Mortgage Default Notices Soar 67%
As the housing boom fades, a rising number of Californians are struggling to hold on to their homes.
Lenders warned 20,752 homeowners in the second quarter that they were on the path to foreclosure because of missed payments, according to data Wednesday from DataQuick Information Systems in La Jolla.
That was a jump of 67% from the year-earlier period, the fastest increase since DataQuick began tracking such default notices in 1992.
After a four-year binge, the housing market is confronting higher interest rates, prices that are out of reach of many buyers and an economy that is showing increasing signs of slowing.
Although California default notices still are significantly lower than the historical quarterly average of 32,762, a persistent surge would both signal and help create some rocky times.
“This is a key measure of financial distress,” DataQuick analyst Andrew LePage said. “If it continues long enough it could impact home values.”
A notice of default is the prelude to foreclosure, but very few homes end up there. People tend to sell a house before suffering the ignominy of letting the bank seize it.
Even so, the number of foreclosures in the state is rising too. The second-quarter total was 1,901, according to DataQuick, a 215% jump over the 604 in the same period last year.
“Housing bears will tell you the world is coming to an end,” said Scott Simon, mortgage portfolio manager for Newport Beach-based investment giant Pimco. “But by every historical standard, this is still insanely low,” he said of the latest DataQuick numbers.
On a scale of zero to 10, Simon suggested, the current level of defaults is about 1.
At the peak of any housing boom, foreclosures and default notices are nearly nonexistent. That’s because home values are rising so fast that they cover up any financial missteps by homeowners, who can draw down their equity to get out of trouble.
Since 1992, the lowest rate of foreclosure activity was during the third quarter of 2004, when 12,145 notices of default were filed in California. The highest was 59,897 in the first quarter of 1996, when the real estate market was finally shaking off the brutal price decline of the early 1990s.
In counties that had more than 100 default notices in the second quarter, the biggest percentage increase was in Placer County, near Sacramento, where they rose 126%, DataQuick said.
It’s probably not a coincidence that Placer ranked at the top of another list: Median home prices fell more there over the last year than in any other county. The drop from June 2005 to June 2006 was 7.6%, DataQuick said.
In Los Angeles County, default notices were up 45% in the second quarter from a year earlier, to 4,586. The rate of increase was twice as fast in Riverside and San Diego counties.
Further proof that the housing market continues to slow came in a report Wednesday from the Mortgage Bankers Assn., which said mortgage applications nationwide fell last week to the lowest level since May 2002.
How bad things are, and how bad they’ll get, remain a matter of dispute.
“We see a glide path downward as opposed to a more spectacular crash,” said economist Ryan Ratcliff of the UCLA Anderson Forecast.
Sean Snaith, who analyzes housing and the economy for the University of the Pacific in Stockton, has changed his metaphor for the state’s real estate market from a souffle (delicate, full of hot air) to a crepe (less exciting but less likely to collapse).
But Angelo Mozilo, chief executive of Countrywide Financial Corp., the top U.S. mortgage lender, told analysts last week that “I’ve never seen a soft landing in 53 years.” And Ian Shepherdson, an economist at consulting firm High Frequency Economics, said the U.S. housing market overall was in for a “deep and sustained correction.”
Patti Hale, a San Diego agent, had a succinct summary of the market: “It stinks.”