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California foreclosure starts fall to lowest level in four years

The number of Californians entering foreclosure dropped steeply in the second quarter to hit its lowest level since 2007, a sign the foreclosure crisis in the Golden State could be easing amid a more stable housing market and increased scrutiny from regulators.

Notices of default filed against California homes dropped 19.2% during the three months ended June 30, when compared withthe same period a year earlier, and 17.0% from the prior quarter, according to San Diego research firm MDA DataQuick.

A total of 56,633 homes received a notice of default, which is the first formal step in the foreclosure process.

Foreclosure practices have slowed nationally as homeowners challenge foreclosures in court and the nation's biggest banks face settlement talks with regulators over faulty repossession practices. The nation’s five largest mortgage servicers are currently negotiating with a committee of all 50 state attorneys general over last year's robo-signing scandal, where banks employed people who attested to the veracity of key documents without reading or understanding what they were signing.

Some experts believe if a settlement is reached, foreclosures could spike again once banks overhaul their practices. Unlike other states whose foreclosure system is overseen by the court system, foreclosure activity in California has seen a steady decline for more than two years, as the housing market has recovered faster than other hard-hit states.

John Walsh, DataQuick president, attributed the declines to a steadier housing market.

"Homeowner distress spreads fastest when home price declines are steepest," Walsh said in a statement. "And it now appears likely that, barring some new economic shock, the worst of the price declines are behind us.”

The number of homes taken back by banks also fell in the second quarter. A total of 42,465 homes were taken back by banks during those three months, a 10.9% decline from the same period a year earlier and a 1.4% drop from the prior quarter.

Southern California housing market improves slightly in June

The Southern California housing market showed some signs of stabilizing last month with sales popping up more than average from May to June, a real estate data firm reported Tuesday.

Sales rose 11.6% from May, driven by first-time buyers and investors scouring the market for bargains. A total of 20,532 newly built and previously owned homes sold in the region last month, according to DataQuick of San Diego. That tally was nevertheless a 14.0% decline from the same period a year ago, the last month that buyers could close on their home purchases and qualify for the popular federal tax credit.

The median sales price for the region was $285,000, a 1.8% increase from May though still down 5.0% from June 2010. The median, the point at which half the homes sold for more and half for less, was 15.4% above the most recent bottom of $247,000 hit in the throes of the financial crisis in April 2009.

“The housing market remains dysfunctional and lopsided, just somewhat less so than it was a few months or a year ago,” DataQuick President John Walsh said. "The market mix indicates that a lot of potential buyers are either stuck, for lack of equity, or spooked and are waiting things out.”

Sales of so-called distressed properties -- those whose owners are in some state of default -- made up more than half of the Southland resale market last month. Roughly one out of three homes resold was a foreclosure, while almost one in five was a short sale, in which the mortgage holder accepts a sale price that is less than the outstanding debt on the property.

Investors to the rescue of housing market

Who is going to lead the housing market out of the doldrums?

Certainly it won't be move-up buyers. People who already own homes are not likely to be venturing forth to find another one until they can sell their current residences. And with all those foreclosures gumming up the works, it's tough to stand out in the crowd unless you're willing to give your place away.

It probably won't be first-time buyers, either. Despite the most affordable prices and loan rates in ages, rookies have shown a marked propensity to remain on the sidelines. After all, why rush? Who wants to buy a house, only to see its value go down? Why not wait until we know values have hit bottom?

That leaves investors. According to a new survey from the California outfit that operates the official website of the National Assn. of Realtors, real estate investors will outnumber traditional borrowers 3 to 1 over the next two years.

Investors are sometimes thought of as bottom feeders who pick off properties from financially troubled sellers who see no other way out. And while there most likely will be a bit of that going forward, this time around the main prey will be banks, not strapped consumers.

That's a good thing. The overwhelming consensus is that before the sinking housing market can right itself, banks must rid themselves of millions of houses and apartments they've already taken back or will repossess in the future. Get them off their books and into the hands of users. Only after houses under duress are cleared from the decks will housing find its footing.

Investors often are in and out in a flash, buying a place, splashing some paint on the walls, maybe updating the appliances and then reselling at a good, if not huge, profit. Again, while there will be some "flipping" in the future, the survey by Move Inc. found that most investors will buy and hold for at least five years, long enough for many neighborhoods to stabilize.

Moreover, nearly half say they plan to invest their own time and energy to repair, maintain and improve their properties. And 30% say they'll hire a contractor to do the work.

These would-be investors still expect to reap decent returns. Nearly half of the 200 investors queried — a statistically relevant sample — expect to make a profit of 20% or more when they sell after their five-year or longer hold. In the meantime, most will put their investments to work as rentals. Some may even live in their properties until they jettison them sometime down the road.

In other words, says Move Chief Executive Steve Berkowitz, today's investors, many of whom are new to real estate, are not your stereotypical deal-driven sharks. Rather, he says, they are mostly entrepreneurial individuals who "will make vital contributions to local communities by investing their own money and sweat equity [that] over the long run will help improve housing stocks, home values and property tax bases in thousands of local communities."

Let's hope so.

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California May Home Sales

An estimated 35,536 new and resale houses and condos were sold statewide last month. That was up 0.9 percent from 35,202 sales in April, and down 13.3 percent from 40,965 sales in May 2010. California sales for the month of May have varied from a low of 32,223 in 1995 to a high of 67,958 in 2004, while the average is 46,840. DataQuick's statistics go back to 1988.

The median price paid for a home in California last month was $249,000, unchanged from April, and down 10.4 percent from $278,000 in May 2010. The year-over-year decrease was the eighth in a row after 11 months of increases. The last time the median fell more on a year-over-year basis was in September 2009, when it fell 11.3 percent. The statewide median’s low point in the current cycle was $221,000 in April 2009, while the peak was $484,000 in early 2007.

Distressed property sales made up about 53 percent of California’s resale market last month.

Of the existing homes sold in May, 35.5 percent were properties that had been foreclosed on during the prior 12 months. That was down from 36.4 percent in April and about the same as 35.4 percent in May 2010. The all-time high was 58.5 percent in February 2009.

Short sales – transactions where the sale price fell short of what was owed on the property – made up an estimated 17.9 percent of resales last month. That was up from and estimated 16.9 percent in April but down from 18.9 percent a year earlier. Two years ago short sales made up 12.2 percent of the resale market.

The typical mortgage payment that home buyers committed themselves to paying last month was $1,025. That was down from $1,050 in April and and down from $1,178 in May 2010. Adjusted for inflation, last month's mortgage payment was 53.8 percent below the spring 1989 peak of the prior real estate cycle. It was 61.5 percent below the current cycle's peak in June 2006.

San Diego-based DataQuick monitors real estate activity nationwide and provides information to consumers, educational institutions, public agencies, lending institutions, title companies and industry analysts.

Indicators of market distress continue to move in different directions. Foreclosure activity has declined somewhat but remains high by historical standards. Financing with multiple mortgages is low, down payment sizes are stable, cash and non-owner occupied buying has eased a bit this spring but remains relatively high, DataQuick reported.

RealtyTrac's Housing Recovery Forecast

At HousingWire's 2011 REO Expo in Texas this week, a RealtyTrac spokesperson gave the firm's housing recovery forecast. Senior Vice President Rick Sharga's predictions were probably not what most wanted to hear.

"It's taking so long to get out of this mess because it took us so long to get into this mess," said Rick Sharga. "We were at the tail end of an unusually long boom time in housing. Unfortunately, we're anything but recovered, we're actually still searching for the bottom."

With that in mind, Sharga is predicting a full housing recovery is years away, perhaps around 2015. In the immediate future, it will take at least another year to work through the mountain of REO inventory. The next two years will see similar foreclosure and home sales levels as the industry attempts to deal with what RealtyTrac is calling higher levels of distressed properties than we've ever seen before. Apparently, there's growing evidence that an increasing backlog of seriously delinquent mortgages exists.

In addition, RealtyTrac estimates that a staggering 80% of the 1.1 million properties in foreclosure and 75% of the 900,000 REO properties are not on the market yet. Couple that with a high number of adjustable rate mortgages which will reset and it's easy to see why there's continued cause for concern.

The total foreclosure filings for 2010 fell just shy of 3 million (at 2.9 million). Compare that to five years earlier when only about a fifth as many foreclosure filings happened (550,000 foreclosure filings for 2005), and the astronomical increase becomes even more apparent. Where will we be for 2011? Well, if the 2011 first quarter is any indication, we will far surpass 2010's totals. For the first four months of this year, there were 941,851 foreclosures. Nearly a million in just over a quarter! At this pace, we could flirt with the four-million mark!

For short sale agents, NOW is the time to pull out all the stops. Every home lost to foreclosure is a missed opportunity to help a family and make a sale. Perhaps it's time to look into the HAFA program more thoroughly to expand your short sale reach.

For real estate investors, so much opportunity exists that it may be hard to focus or narrow your investment selections. That's where the help of a real estate agent who really knows the area you're seeking would be of great benefit. With or without an agent, however, it's an absolutely historic time to be investing in real estate.

Freddie Mac: 30-year mortgage rate levels off at 4.5%

Mortgage rates leveled off this week, according to a Freddie Mac survey that found the 30-year home loan up a single notch and the 15-year mortgage down by the same amount.

The survey said lenders were offering 30-year fixed-rate loans to well-qualified borrowers at an average 4.50% compared with 4.49% last week and rates in the 4.2% range for a couple of months last fall.

The 15-year fixed loan was at 3.67%, down from 3.68%, Freddie Mac said Thursday. The borrowers would have paid an average 0.7% of the loan amount to the lenders in upfront fees and points for the fixed-rate loans.

Adjustable rate loans, for those tempted by the riskier mortgages, are "at or near record lows," Freddie Mac economist Frank Nothaft said in an economic outlook report this week.

The start rate on Treasury-indexed home loans that become adjustable after five years at a fixed rate averaged 3.27% this week, with 0.6% in lender fees, down from last week's 3.28%.

Treasury-indexed loans that adjust once a year averaged 2.97% with an average 0.5% of the loan amount in lender fees, up from last week's 2.95%.

With the rates so low and home prices edging lower again in many areas, housing affordability is very high -- but not so consumer confidence these days, Nothaft noted. From his outlook report:

Consumers who feel heightened uncertainty over their economic well-being and future prospects are more likely to be cautious when considering purchases of big-ticket items, such as cars or homes.

Further, the first-quarter data on U.S. house-price softness has removed a catalyst to immediate action: Some potential buyers who have the means to buy are awaiting clearer signs that home values have firmed.

Buyers' hesitancy and the continuing foreclosure crisis have resulted in greater demand for apartments. Vacancy rates in buildings with at least five apartments have steadily drifted lower over the past year, Nothaft noted, while monthly rents have risen.