Home mortgage loans throughout California went into default last quarter at the highest rate in more than eight years, the DataQuick Information Systems research firm reported yesterday.
Lenders sent notices of default, the first step in the foreclosure process, to 37,273 homeowners during the fourth quarter. It was a rise of nearly 37 percent from the previous quarter and an increase of 145 percent from the fourth quarter of 2005, said DataQuick analyst John Karevoll.
Foreclosure sales on California homes totaled 6,078 during the final quarter of 2006, up nearly 77 percent from the previous quarter and up 595 percent from the last quarter of 2005, he said. About 32 percent of homeowners who found themselves in default earlier last year actually lost their homes in the October-to-December period. A year ago, the figure was 8 percent.
The sharp rise in distressed properties "definitely reflects a softening trend in the housing market," said Union Bank senior economist Keitaro Matsuda. "The percentage growth looks dramatic because housing demand a year ago was relatively strong. It does not necessarily reflect a housing market crisis."
In San Diego County, there were 1,621 foreclosures during 2006, compared with 212 in 2005, a jump of about 665 percent. Notices of default here totaled 8,816 during the year, compared with 3,933 in 2005, an increase of 124 percent.
Because there are about 650,000 homes in the county, the current level of default isn’t alarming, but the market is delicately balanced, Karevoll said. Small shifts in interest rates or a slump in the economy could have big impacts, he added.
"San Diego County numbers still are relatively low, but in parts of Riverside County and San Bernardino County, we expect foreclosure activity to impact the market" to a small degree, he said.
DataQuick reported that the overall median home price in San Diego County during 2006 dropped 0.8 percent, to $490,000. The 2005 median was $494,000. The year-over-year decline was the first since a 1.8 percent drop from 1994 to 1995, when the median price was $166,000.
Greg Smith, San Diego County’s assessor, recorder and clerk, said he agreed with Matsuda that a rising foreclosure rate doesn’t necessarily mean there is a serious problem. The year 2005 "was a tremendous, unbelievable sellers’ market," followed by a buyers’ market in 2006, he explained. That makes foreclosure figures for 2006 seem high by comparison.
Smith predicted a more balanced market in the year ahead, with 2008 becoming a sellers’ market, given a favorable lending climate.
California mortgages were least likely to go into default in Marin, San Francisco and Santa Clara counties during the fourth quarter, and most likely to go into default in Merced, Riverside and Tulare counties, Karevoll reported.
Zoltan Pozsar, an economist for Moody’s Economy.com, noted that defaults are on the rise nationwide.
"Credit quality is deteriorating nationally," Pozsar said. "In Southern California and the Central Valley, the erosions in credit quality are mainly today due to ARM (adjustable-rate mortgage) resets, where subprime borrowers have taken on mortgages and the teaser rates are expiring. They are starting to bite.
"Other regions are experiencing greater credit erosion as well, most notably the Midwest," he continued. "The auto industry is in trouble. In the Northeast, where declines in home prices have been the most pronounced, buyers are seeing their equity erode, so they have an incentive to default."
Most of the California loans that went into default last quarter were originated between January 2005 and February 2006, DataQuick reported. Karevoll said he believed declining home prices, not adjusting loans, were the prime cause of foreclosures. For some recent buyers, a softening in prices has resulted in less flexibility to either refinance their mortgages or to sell their homes quickly to satisfy lenders. Others may have reached beyond their means to achieve homeownership, analysts say.
Matsuda said San Diego’s housing market had been a trendsetter for California and was likely to remain so.
"San Diego was at the epicenter of the housing boom," Matsuda said. "San Diego may get on firmer footing before the rest of the state."