Union-Tribune - September 22, 2009
August stats indicate stabilizing, experts say
A dramatic drop in home default notices and foreclosures last month may signal a stabilization of San Diego County's housing market, market analysts said yesterday.
Some economists interpreted the August statistics as reflecting improving economic conditions. But they cautioned that the trend must continue for several more months before they can be certain.
Locally based MDA DataQuick reported a 19.9 percent drop in notices of defaults — the first step on the way to foreclosure — from 3,318 in July to 2,658 in August for San Diego County. The number was 6.7 percent lower than in August 2008 and the lowest since last November.
But the decline, duplicated elsewhere in the state, was at odds with rising delinquency rates, said DataQuick analyst Andrew LePage.
“Based on everything we hear from mortgage lenders and the government and private firms that put out delinquency numbers, there hasn't been a letup in the amount of distress,” LePage said.
Normally, after borrowers fail to make mortgage payments for two or three months, their lenders file notices of default, and within six months, they foreclose on the properties.
What may be happening instead, LePage said, is that lenders are not pushing owners into default and foreclosure but are working with them to restructure their loans or arrange for short sales, in which the homes are sold for less than their loan balance.
It isn't clear if these efforts will succeed — about half of all loan modifications have failed because the owners still couldn't keep up with their revised payments.
But if the new efforts succeed under a new federal incentive program, it would mean fewer homeowners would lose their properties and the overall real estate market could stabilize next year and recover the following year, as many market analysts have predicted.
Norm Miller, a real estate professor at the University of San Diego, said the new figures may reflect another factor.
“The unemployment rate is really what we should be watching,” he said. “When that bottoms out, that should correlate somewhat with the default rate bottoming out.”
He noted that San Diego's jobless rate remained unchanged in August, whereas the state and the nation's rates rose.
“It just may be that our unemployment situation is not as dire as the rest of the state or the country, because we do have the military and other stabilizing factors,” Miller said. A steadier economy would naturally help support housing values.
Marney Cox, chief economist at the San Diego Association of Governments, agreed. “All we can hope is the economy is beginning to turn around, giving people stable income so there won't be another reason for them not to make their mortgage payments, like no job,” he said.
DataQuick also released foreclosure data in San Diego for August, which showed an 8.9 percent drop in trust deed sales, down from 1,307 in July to 1,191 in August. The total was down 39.8 percent from year-ago levels.
A neighborhood breakdown showed a continued shift in foreclosure activity from areas that had been prone to subprime lending to higher-income areas newly hit by layoffs and economic reversals.
Thirteen ZIP codes registered increases from August 2008, including Carmel Valley, up 70 percent to 17 foreclosures; Ramona, up 38.1 percent to 29; and El Cajon 92020, up 2.9 percent to 36.
Some of the biggest declines occurred in eastern Escondido (ZIP 92027), down 72.3 percent to 23 foreclosures from 83 in August 2008; northern Oceanside (92057), down 70.7 percent, from 99 to 29; and Eastlake-Otay Ranch in Chula Vista (91913), down 60 percent from 95 to 38. Last week's DataQuick sales counts for August showed less activity in some of these areas, suggesting fewer distressed homes on the market.
“Look at Chula Vista,” Le Page said. “It's still a bigger problem in relative terms, but it's been worse. It's down less and there's less foreclosure inventory, which helps explain the lower sales numbers.”
Leonard Baron, a professor of finance at San Diego State University, said the slowdown in foreclosures may simply be due to banks “clogged up” with so many defaults and foreclosures in the pipeline.
But for buyers who are able to purchase distressed properties, he said, they can count on a high return on investment. He said he personally bought a Chula Vista condo recently for $110,000 that previously sold for $300,000. The monthly mortgage payment of $800 is low enough to cover all expenses and produce positive cash flow as a rental.
“It's a wonderful time to buy,” he said, but only in lower-priced areas.
Dustin Hobbs, spokesman for the California Mortgage Bankers Association, said the drop in defaults and foreclosures probably is due to more lenders and loan servicers agreeing to participate in the federal government's Home Affordable Modification Program. It offers incentives to lenders to adjust mortgage rates and balances and owners to keep up with their new payments.
“You can make the case that the system is a little backlogged with loans trying to go through this program or another program,” Hobbs said.
