Housing Recovery Strength Shown in Sharp Drop in California Foreclosures

By Stevie Duffin Updated on 1/24/2013

By Daniel Duffield

Foreclosures in the state of California reached a 6-year low in Q4, according to real estate research released Wednesday.

Between October and December, 38,212 default notices were issued to houses and condominiums in California, declining 37.9% from the 61,517 notices issued during the same months in 2011, according to a DataQuick report. This figure represents the lowest measurement since the fourth quarter of 2006, in which 37,994 notices were sent.

In addition, throughout all geographic regions and price categories, decreases in foreclosures were noticeable, demonstrating the strength of the housing recovery, especially considering that such a prominent drop took place in California, one of the states most significantly impacted by the housing market downturn.

Furthermore, December saw California’s median home price rise 20% from 2011 prices. In particular, the San Francisco Bay area increased 32%, the most substantial increase within the past two decades. John Walsh, president of Dataquick, stated that this increase in home value consequently lowered the amount that homeowners owed on their mortgages, allowing them the ability to sell their homes or alternatively providing access to refinance loans at low interest rates.

This positive trend greatly contrasts the market just three years ago, when foreclosed homes constituted a much larger portion of the market, accounting for approximately 57.8% of home sales during Q1 of 2009. In the fourth quarter of 2012, foreclosed homes comprised only 16.6% of existing home sales, much decreased from even 2011 levels of 33.6%.

Gary London, president of the London Group Realty Advisors located in San Diego, said that investors have consequently had some difficulty finding distressed homes to turn around and even stated that, “for the most part, that party’s over.”

According to London, the recession was differentiated by the large amount of distressed home sales that guided and defined the housing market in those years.

Short sales, the sales of homes with mortgages exceeding their current market worth, increased in 2012 as lenders arranged these sales in order to avoid the expenses and time-consuming process involved in foreclosure proceedings, said DataQuick. During the fourth quarter of 2012, short sales made up 26% of existing home sales, rising from 25.7% the previous year.

Foreclosure activity saw little change within areas of lower-valued housing, according to DataQuick statistics. ZIP codes with median home prices under $200,000 had approximately 5.5 default notices issue among ever 1,000 homes, higher than the rates for those areas with home prices between $200,000 and $800,000 and for areas with median home prices above $800,000, which had levels of 3.5 and 1.3 respectively.

The issuance of default notices is the first step to beginning the foreclosure proceedings and is the primary indicator of foreclosure. In terms of completed foreclosures, California saw a total of 21,227 foreclosures finalized during the fourth quarter, declining 32.4% from the 31,260 foreclosures finalized in Q4 of 2011.

Alternative to default notices, another indicator of foreclosures has also suggested a declining trend in foreclosures, with the Mortgage Bankers Association (MBA) revealing that only 6.56% of California home mortgages had a minimum of one delinquent payment at the end of September, decreasing from the 2011 level of 7.68%.

All in all, this substantial decline in foreclosures in California is indicative of a strong housing recovery nationwide, owing to the fact that California was among those most affected by the burst of the housing bubble.