California Foreclosures on Rise, But Still Below Average

Posted in Foreclosure, August 31st, 2006 |

Increasing foreclosure activity in California may be a sign of worse to come, but for now remains well below historic norms.

There were 18,668 notices of default sent out to state homeowners from January to March, up 23.4 percent from the fourth quarter and 28.7 percent from the same period last year.

“It seems like a high increase, but it’s only above abnormally low levels,” said DataQuick analyst Andrew LePage, adding that the Golden State’s historic average is around 33,000 notices per quarter. “It tends to lurch whenever it’s coming off the bottom like that.”

There were 564 default notices in Alameda County outside San Francisco during the first quarter, up 23.7 percent from the prior quarter and 9.3 percent from a year ago. Contra Costa county notices increased to 605, up 11.8 percent and 5 percent, respectively, from those periods.
One of the main reason default notices are rising is that home value increases are starting to taper off to their recent surges to a more static level, which makes it difficult for homeowners to sell when they run into trouble.

Economist Stephen Levy agreed the jump is not worrisome in itself but said it could be a sign of building stress in the housing market. He said he believes that many home owners will be at greater risk for foreclosure in the coming months, as teaser rates on the adjustable-rate or other riskier loans that helped fuel the recent real estate boom adjust to higher minimum payments.

The percentage of East Bay buyers who opted for adjustable-rate mortgages increased from 3.4 percent in 2000 to 28.2 percent in 2005, according to San Francisco-based LoanPerformance. This is dangerous as well, since ARMs were extremely popular among those looking to capitalize on the market surge by signing on for ARMs, which have low initial costs but end up resulting in steep monthly payments. For those homeowners who could not turn around and sell before those rates kicked in, they are now stuck with them.

-John Grady