Foreclosures fell to the lowest level in more than seven years during the fourth quarter in California, the latest evidence of a better housing market and an improving economy.
Notices of default declined to 18,567 notices of default from January through March, a 51.4% percent drop from fourth-quarter 2012 – and off 67% compared to a year ago, according to DataQuick. Notices of default – the first step in the foreclosure process – peaked at 135,431 in first-quarter 2009.
The just-completed quarter’s default notices were the lowest since fourth-quarter 2005, the final months of the housing boom and just before the housing market slide. However, foreclosure activity remains higher than the historic average.
“Foreclosure starts were already trending much lower last year because of rising home prices, a stronger labor market and the settlement agreement between the government and some lenders,” says John Walsh, president of DataQuick. “But it appears last quarter’s drop was especially sharp because of a package of new state foreclosure laws – the Homeowner Bill of Rights – that took effect January 1. Default notices fell off a cliff in January, then edged up.”
Fast-rising home prices definitely helped curb foreclosures. California’s median-home price – meaning half the homes sell for more, the other half for less – increased to $297,000, a 22.7% gain from a year ago, according to DataQuick.
Default notices were higher in the state’s most affordable neighborhoods, with the average homeowner almost nine months and $14,300 behind on their payments.
Most of the loans entering default are from the 2005-2007 period, when weak underwriting was at its peak.
As expected, coastal communities – where home prices are higher and have rebounded faster – report fewer foreclosures than inland areas, such as the Inland Empire and central San Joaquin Valley, at least based on the percentage of filings
Despite the dramatic drop, Walsh adds foreclosures could increase, especially with home prices and refinancing critical to the turnaround.
“It’s certainly possible foreclosure starts will pick up at some point this year if lenders need to play a lot of catch-up,” he says. “Rising home prices will be key to the final mop-up of the foreclosure mess. As values rise, fewer people owe more than their homes are worth and more people can refinance into a more favorable loan. It also means more who fall on hard times can sell their homes for enough to pay off the loan.”