Foreclosures Still On the Rise in California

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. Yesterday’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

Comments

[Ames Tiedeman:]

Some say California real estate will fall another 20% from here. Why can;t it fall 50%?
The per capita income in Huntsville, Alabama is $15,000 higher than San Diego, Ca., and property is 1/3 the cost. It is all coming home to roost. Back in the 1950' and 1960's the pricing disparity between houses in Southern California and the "rest of the nation" as it was called was about 10%. California has a long way to fall.

2008 Jul 24 06:49 AM

[ksmithdc:]

Real estate in CA had been artificially overinflated for a while now. It was only a matter of time until that bubble burst. Eventually it will reach an equilibrium. Let's all hope that day comes soon!

2008 Jul 24 09:34 AM

[easywriter:]

I attended a foreclosure auction in San Mateo, (northern) CA last weekend, and was amazed that prices of homes in Seaside, and long the inner coast came in 60% and more below what appraised value had been at the peak. But interestingly when they got to San Jose (Silicon Valley), prices were discounted much less, maybe 25% (and 10% to 20% below current value). Auctions are distorted pictures in a way in that prices are lower than the "real market" but still an indicator. One reason is Silicon valley still has one of the strongest industrial bases in the country with high tech, and annual earnings are probably twice what they are in other states. Some areas like Los Altos are actually still rising slightly (my neighborhood is down about %5/yr), and SF has held up too. Compare that to cities like san diego and stockton, where prices plummeted. These are towns where prices inflated far too fast and they are paying the price. Short term, prices will fall--20% maybe?--but not 50% or 70% as the doomsdayers might wish. Calif has gone through this before and this will provide good opportunities for home buyers with cash and credit to get in. Long term the economy is healthy and is still one of the choice regions to live in with an international influx of people;prices will rise again,faster than the national average. This is just another cycle, perhaps deeper, but another cycle still.

2008 Jul 24 10:57 AM

[easywriter:]

One more angle on this, looking at the unreported "shadow inventory" of foreclosures nationwide. bigpicture.typepad.com...

2008 Jul 24 12:43 PM

[REBroker:]

EasyWriter you're a retard! "Homes can't drop 50-70%....Maybe 20%..."

You think the 30+% drop that has already occured is anything?
How can you assume it won't drop more after the spike was 300% off of 50 year (5%) appreciation trends?

Please post your address so we SA readers can send you an invoice for wasting our time.

2008 Jul 24 04:29 PM

[believeItOr...:]

Easywriter, you must be one of the million RealTards out here in California... I know, I know, you must be a cheerleader so you can dupe people out of their networth by buying overpriced assets that are not expected to converge 2007 levels for 8-10 years, just so you can pay your interest only loan on your McMansion. The problem here is you don't realize that you are really a negative rich MiddleClass Millionaire... may god have mercy on your sole.

2008 Jul 24 04:31 PM

[believeItOr...:]

... this is probably the same smart guy that said "buy bank stocks now they are at the bottom" 6 months ago, and then advocated for the reguation against shorts... Moron

2008 Jul 24 04:35 PM

[easywriter:]

Not sure about these wild rantings (someone give BelieveIt his medication) but I was simply trying to say it's dangerous to generalize. Sure, some areas like Stockton could fall 50% or more--they were hyperinflated; they should fall. Others, including Silicon Valley and SF, didn't rise as fast and I don't see them collapsing. The faster they fall, and the sooner it hits bottom, the better and sooner we'll start a recovery. Maybe then even BelieveIt can afford to buy a little place out here.

ps: it's spell "soul" (I don't need anyone to have mercy on the bottom of my shoe)

2008 Jul 24 05:38 PM

[believeItOr...:]

Actually you do... seeing as the bank owns your house, the only thing you own is your shoes. You sold your soul when you considered yourself a professional; peddling bad advice and printing your picture on your business card. RealTards!! But it's cool, now you can utilize your community college coursework and blog... may I suggest TMZ or PerezHilton?

2008 Jul 24 05:44 PM

[Unknown Inv...:]

I agree with easyrider. The SF peninsula never really had a radical increase in prices like many other areas. If author of the artical above is correct that inventory absorption of foreclosures in Sac is about another 6-9 months out, the SF peninsula might not see 10% price roll backs.

In other words, habitation is the real determinate in stable real estate market values. Market made from and through the acts of profligate people (buyers, facilitators, primary and secondary financial market participants all included) are those that are having and are going to continue have a heck of a time.

2008 Jul 26 07:21 PM

[Unknown Inv...:]

a

2008 Jul 26 08:08 PM

[believeItOr...:]

Somehow Easyrider and Johnny g think they are in an isolated bubble and try to convince themselves their phantom wealth is intact. But in reality, they lay in bed in their subprime "rented" lofts in "Los Altos" and "The Peninsula" really sweating to the facts:

money.cnn.com/2008/07/...

*Good luck on your other over leveraged assets

2008 Jul 29 02:32 PM

[Real Estate...:]

Ahhhh....Round and Round we go...

I agree with Mr. "Believe or not.'" He's obviously speaking from a fundamental perspective.

The problem is not with what he has already said. Rather, the problem lies (as it always does) with people's unwillingness to accept the truth.

Homes will continue to adjust downward, until they converge to the the 5% per annum norm that has defined California Real Estate for 50+ years. In fact, they may even dip lower first. This depreciation or devaluation has little do with foreclosures and the like. It's simply an economic reality.

Everyone on this blog should just admit that they got caught up in the hype of the "ScAmerican Dream," overleveraged to buy non-performing, overinflated, liabilities dressed up as assets.
In other words, we all fell victim to the middle class trap, and the Snake Oil salesman with the GED. I'm referring to Realtwhores that took a 3-week internet course, bubbled in their Scantrons, and were somehow deemed "licensees" by the Deparment of Real Estate.

I did it too, admitted defeat, short sold my home, and got my a** handed to me. But I didn't continue to live in some non-analytcal, opinionated, fairy tale, where prince Charming (Ben Bernanke) bails me out and the PERCIEVED value of my home goes up. Or rather, the value of the banks home, that I rented, and assumed all the liability for... For the lay person, my reference is the American perception of ownership.

I dare you to show me how ignorant you are...

2008 Jul 29 03:48 PM