It seems that people are talking a lot about foreclosures in California, but nobody really is aware of the statistics and the current effect on the local markets.
Q: Why has there been more talk about foreclosures lately?
A: Recently, the number of Notices of Default (NODs) has been increasing. A Notice of Default is given by the bank when the homeowner is behind on mortgage payments, and this is the first step in the foreclosure process. Statewide, the first quarter 2007 default level (46,760 NODs) was the highest since second quarter 1997 (47,912 NODs). The first quarter 2007 NODs was up 148% from first quarter 2006 NODs, and up 23% from the last quarter of 2006.
Q: What areas have the highest and lowest likelihood of mortgages going into default?
A: Highest likelihood of entering default is occuring in Riverside, Sacramento, and Contra Costa Counties. Lowest likelihood of going into default is occuring in San Francisco, Marin, and San Mateo Counties.
Q: Why are Notices of Default increasing?
A: The loans going into default were made during a time when appreciation rates were high and subprime lending was commonplace. Many people were taking advantage of adjustable rate mortgages, which have a low teaser introductory rate that resets after a predetermined period of time. Thereafter, the rate will increase and cause loan payments to increase accordingly. The ultimate result is that people cannot afford to pay the mortgage and ultimately go into default.
Q: How is Los Angeles affected?
A: Here are the numbers--The number of default notices in Los Angeles County during first quarter 2007 was up 110% from first quarter 2006. 8,843 notices were given.
Q: How does this compare to other times when defaults were high?
A: The number of default notices in Los Angeles County is 60 % LOWER than the peak in 1996, indicating the severity of the 1996 recession as well as strength in todays market.
Q: How has all of this affected home prices?
A: So far, the effect on today's market is negligible, according to DataQuick. DataQuick is the company who has analyzed all the defaults and you can learn more by visiting their website.
Also, I have not noticed a lot of foreclosures on the Westside. Prices continue to increase, and the Westside real estate market always tend to deviate from national, and even regional, trends.
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