Real Estate Articles

Foreclosure activity on the rise, but still in normal range

In light of the heavy reliance on alternative loans in recent years, and with the housing market stabilizing these days, there are growing concerns about the future direction of foreclosure activity. Default rates are on the rise, but analysts claim the default rates are still in normal range.

According to DataQuick Information Systems, the number of default notices sent to California homeowners increased 111.8 percent to 26,705 in the third quarter of 2006 from 12,606 in the third quarter of 2005, and increased 28.3 percent from 20,812 in the second quarter of 2006. The number was the highest since the first quarter of 2002, and more than double the number of notices in the third quarter of 2004, when the number of default notices hit a record low of 12,145.

A report written by California Association of Realtors ® Senior Research Analyst Oscar Wei indicates foreclosure activity has varied across the state. The Bay Area fared the best with an increase of 89.2 percent from 2,006 in the third quarter of 2005 to 3,795 in the third quarter of 2006. The Central Valley saw a 148.9 percent year-to-year increase in notices of default from 2,417 in the third quarter of last year to 6,017 in the same quarter of 2006. Southern California, with the second highest year-to-year increase in foreclosure activity, jumped 104.8 percent to 15,676 from 7,654.

Wei observes despite the recent surge in notices of default, the current quarterly figure remained below the long-term average of 32,653, and was less than half the number when it peaked in the first quarter of 1996 at 59,897.

“The impact of the increase in foreclosure activity so far has not been significant to the housing market,” Wei states in his report. 

Citing a stdy entitled, “A Ripple, Not a Tidal Wave,” released by First American Real Estate Solutions, Wei indicates foreclosure sales made up only 0.6 percent of total sales in the California housing market for the first half of 2006, which was virtually unchanged from that recorded for the same time period in 2005.

“While this was a modest increase from last year, its impact on market sales prices was minute as share of foreclosure to total sales remained small,” according to Wei.

With more loans due to be converted in the upcoming years, Wei anticipates an increase in foreclosures in 2007.

“How it will affect the housing market will depend on the general economic conditions. If the California economy continues to grow at a healthy pace, unemployment will remain low, and the increase in foreclosures will continue to stay at a manageable level,” Wei predicts.  

DataQuick reported this month that the typical monthly mortgage payment that Bay Area buyers committed themselves to paying was $2,865 last month, down from $2,901 in October, and down from $2,921 for November a year ago. It peaked in June at $3,183. Adjusted for inflation, mortgage payments are 12.9 percent higher than they were at the peak of the prior cycle in early 1990.

The median price paid for a home in the nine-county Bay Area was $616,000 in November, according to the real estate information service -  0.3 percent higher than $614,000 in October, but down 1.4 percent from $625,000 in November last year.

As of December, DataQuick reported indicators of market distress are still at a moderate level; financing with adjustable-rate mortgages is flat; foreclosure activity is rising but is still within the normal range; and down payment sizes are stable, as are flipping rates and non-owner occupied buying activity.

The Silicon Valley Association of REALTORS® (SILVAR) is a professional trade organization representing over 4,000 REALTORS® and Affiliate members engaged in the real estate business on the Peninsula and in the South Bay. SILVAR promotes the highest ethical standards of real estate practice, serves as an advocate for homeownership and homeowners, and represents the interests of property owners in Silicon Valley.

The term "REALTOR®" is a registered collective membership mark which identifies a real estate professional who is a member of the National Association of REALTORS® and who subscribes to its strict Code of Ethics.

Variations of this article have appeared in local area newspapers.

For further information, please contact Rose Meily at SILVAR Public Affairs, e-mail , or phone (408) 200-0109.

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