Foreclosures still rising in California

Posted by Tim

July 23, 2008

Over the last few months I have been writing articles on the improving housing market in the Sacramento region, with a little Las Vegas thrown in. I write on these areas because I am familiar with the markets and these were some of the leaders of the recent boom and bust. Over the last 3 months these markets have shown growth in numbers of home sales in both year-over-year and month-to-month, though at significantly lower median prices than a year ago. Today’s data show the other side of the equation, foreclosures, have not turned the corner yet.

In the 2nd quarter of 2008 foreclosures for the 8 county Sacramento region totaled 6,075 compared to 5,278 in the first quarter. The total foreclosures of 11,353 is in comparison to 17,117 homes sold year-to-date in the region. Over half of the resales have been foreclosure properties.

Defaults throughout California continue to rise, although at a slower pace. One item caught my eye:

Most of the loans that went into default last quarter were originated between September 2005 and November 2006. The median age was 26 months, up from 16 months a year earlier.

To me this says it is essentially the same “pool” of mortgages that are going into default, the bunch that originated right at the peak of the market. This same pool appears to be reaching a peak of rate resets against falling values. No wonder so many are choosing to turn in the keys. Mortgages taken out both before and after this period will not have the same extreme negative equity position as this group.

The thing to remember here is this tends to be very delayed data. The average foreclosure takes place after the mortgage is 5 payments in arrears, so the current foreclosure numbers are up to 9 months old (5+3+1). Also, the current sales of foreclosed properties are most likely from the 10,000 homes repossessed in 2007. A turn in the foreclosure activity will not show in the data until 6 to 8 months after the fact.

The next thing I would like to see is a stabilization in the median price on a month to month basis. At that point many more buyers will show up to try to snatch good deals on foreclosed properties and the overhang in inventory will soon (my guess: 6 months?) be absorbed.

Sources: Sacramento Bee Data Quick