San Diego UNION-TRIBUNE - April 21, 2010
If a much-feared “second wave” of foreclosure sales is coming, it’s not in sight, data released Tuesday show.
MDA DataQuick, a La Jolla research firm, said notices of default in the first quarter, ended March 31, were down 40.2 percent from year-ago levels to 81,203 statewide and off 39 percent to 6,170 in San Diego County. Foreclosures were down slightly to 42,857 statewide and up slightly to 3,096 locally year-over-year.
“People have been looking for a shred of evidence of that ‘big scary thing’ coming,” said DataQuick analyst Andrew LePage of a new foreclosure wave, “but there’s nothing we can latch onto right now that conclusively shows that.”
On a month-to-month basis, San Diego defaults and foreclosures were up from February, but they have declined in eight of the last 12 months. The March total for notices of default was 2,263, compared with 2,166 in February and 3,832 in March 2009.
LePage said the February-March rise may reflect some degree of seasonality, but on a year-over-year basis, either by quarter or by month, the trend was down, not up.
As to why defaults are down in the face of high unemployment and other economic woes, Le-
Page said the decline may reflect a policy change in how lenders handle distressed properties.
Instead of acting quickly by filing notices of default and then moving on to foreclosure actions several months later, many lenders are considering loan modifications or permitting short-sales — selling a home for less than the mortgage balance. The banks benefit by not incurring more losses on their balance sheets and owners escape the hits to their credit scores if they can avoid default notices, much less foreclosures.
One common alternative involves short-sales, selling for less than the mortgage balance with the lender’s permission. This is especially appealing when a higher-cost home is involved.
“There’s too much money at stake in the cost of maintenance, so they try short-sales,” LePage said.
But there’s another explanation for the default drop. A year ago, lenders filed many more notices because they had just gone through a period of moratoriums and legislatively-mandated extensions of noticing requirements. They were catching up with the backlog, and defaults spiked.
The decline tells policy makers and market watchers that home distress is on the wane, at least for the moment, and therefore signals a stabilization of the market. Fewer defaults means fewer foreclosures and a firming of prices, since foreclosures tend to sell for less than nondistressed homes.
Sean O’Toole, founder of ForeclosureRadar, a Northern California monitoring group, said unlike the down market of the 1990s, the current strategy by lenders and government agencies aims to bolster the real estate market and forestall, if not minimize, more distress.
“My bet is they will stay in control and it’ll be an orderly but extended disposition of the negative equity,” O’Toole said, referring to “underwater” homes worth less than their original purchase price. “It will be with us for years; foreclosures will be with us for years.”
A contrary view came from Michael Carney, executive director of the Real Estate Research Council of Southern California, based at CalPoly Pomona.
“There’s no question that you have some data suggesting home prices are going back up,” Carney said.
But because lending underwriting standards have been tightened and mortgage money is less available, he said normal patterns of home buying are changing. People with large down payments can buy, but those who can only afford minimal down payments will be hard-pressed.
“I think we’re going to see home prices declining all through 2010 and through 2011, maybe into 2012,” he said. “I don’t see a recovery in home prices across the board.”
Recent reports have shown an increase in the median price, but many analysts have attributed that to a change in market mix — more higher priced homes selling, even if discounted from their previous highs — rather than a general increase in values, except perhaps at the starter-home level.
The latest DataQuick numbers showed a similar disparity within the distressed-market segment. ZIP codes where homes sell for $500,000 or more showed a 1.5 percent increase in defaults in the first quarter over the previous quarter. Homes below $500,000 showed a 5.8 percent decline over the same period. Still there were 10.5 default notices for every 1,000 homes in the sub-$500,000 market, more than twice the 4.5 rate in the over-$500,000 group.
The interest in the distress market continues to draw many investors, the figures show. At foreclosure auctions in the first quarter, 24.6 percent of properties went to investors, up from 17.6 percent a year earlier. The remainder generally became real estate-owned property held by lenders. Those homes now have to be marketed to buyers, both investors and owner-occupants.
Market update & advice from our brokerage
Another beautiful month of May in San Diego and the local real estate market has continued the steady improvement it has experienced for some time. What follows is a statistical summary of activity in our area based strictly on the number of listings and new sales which we feel is the most accurate barometer of current activity. We do not report closed sales because many of them went into escrow several months ago and may not reflect what is happening now. The numbers include all of San Diego County but can be adapted to any local area of interest.
Detached homes: There are now 6,547 detached homes on the market, up from 6,196 last month, an increase of about 5%. 2,235 new escrows were opened in April, up from 2,071 in March, an improvement of about 8%. The fact that the number of new escrows increased at a faster rate than the number of new listings reduced the months of supply from 3.0 last month to 2.8 now. Anything under about 6 months is considered to be in the seller's favor, so prices are rising. Most of this strength, however, is in lower price ranges because there is huge demand by investors for those properties. Financing options in the higher price ranges are still not great and this is inhibiting move-up buyers. In addition to the 2,235 new escrows that opened in April 2,539 more homes went "contingent" (short sales that went under contract awaiting lender approvals). When you add the new escrows and the new contingents we see that 4,774 properties left the market under contract in April leaving us with 0.77 months of inventory in detached homes. This means that the entire inventory clears the market about every 3 weeks. It should be noted that some of the new "contingents" become new "pendings" in the same month as lenders improve their short sale processing.
Attached homes: 3,215 attached homes are now on the market vs. 3,022 a month ago, an approximate 7% increase. 1,210 new escrows opened in April vs. 1,154 in March, an increase of about 4%. This left us with a supply of about 2.5 months of inventory vs. 2.6 last month. This means prices are on the rise due to the low supply levels. When we add the 2,011 other homes that went "contingent" in April the supply is reduced to 0.67 months (2-3 weeks).
Note of caution: Anyone buying or selling a home should have me run this analysis for the neighborhood and price band of interest as homes on the high end of the scale can not be priced as aggressively as lower priced units and buyers can adjust their offers to match their specific product target.
Detached homes: There are now 6,547 detached homes on the market, up from 6,196 last month, an increase of about 5%. 2,235 new escrows were opened in April, up from 2,071 in March, an improvement of about 8%. The fact that the number of new escrows increased at a faster rate than the number of new listings reduced the months of supply from 3.0 last month to 2.8 now. Anything under about 6 months is considered to be in the seller's favor, so prices are rising. Most of this strength, however, is in lower price ranges because there is huge demand by investors for those properties. Financing options in the higher price ranges are still not great and this is inhibiting move-up buyers. In addition to the 2,235 new escrows that opened in April 2,539 more homes went "contingent" (short sales that went under contract awaiting lender approvals). When you add the new escrows and the new contingents we see that 4,774 properties left the market under contract in April leaving us with 0.77 months of inventory in detached homes. This means that the entire inventory clears the market about every 3 weeks. It should be noted that some of the new "contingents" become new "pendings" in the same month as lenders improve their short sale processing.
Attached homes: 3,215 attached homes are now on the market vs. 3,022 a month ago, an approximate 7% increase. 1,210 new escrows opened in April vs. 1,154 in March, an increase of about 4%. This left us with a supply of about 2.5 months of inventory vs. 2.6 last month. This means prices are on the rise due to the low supply levels. When we add the 2,011 other homes that went "contingent" in April the supply is reduced to 0.67 months (2-3 weeks).
Note of caution: Anyone buying or selling a home should have me run this analysis for the neighborhood and price band of interest as homes on the high end of the scale can not be priced as aggressively as lower priced units and buyers can adjust their offers to match their specific product target.
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