Real Estate

Foreclosure Activity UP

Softer Appreciation rates drove foreclosure activity to its highest level in two years during the first quarter, including a 19.1% annual spike in Los Angeles County. However foreclosure activity is coming off all time low levels and would have to double or triple to cause market distress, said DataQuick Information Systems.

In the year's first three months, lenders issued 18,668 default notices to California homeowners, up an annual 28.7% and 23.4 increase from the 2005 fourth quarter. The Last time it was this high was the 18,738 notices at the fourth quarter of 2003.

Across the county, 4,211 homeowners received the notices, the first step in the foreclosure process. That's the most since 4,736 in the first quarter of 2004.

By comparison, an average of 11,211 default notices were issued each quarter in the county over the past 14 years. We're coming off the bottom here. We though this would happen stronger, so this is an indicator of a stronger market that we anticipated.

Factors other than appreciation also affect foreclosure activity. They include the amount of equity people have in their property, the type of mortgage, they used and how long they've had that mortgage.

The low point for statewide foreclosure activity came in the third quarter of 2004, when property owners received 12,145 default notices. Activity peaked in the 1996 first quarter which 59,897 notices. Default statistics go back to 1992.

Market watchers have been predicting for months that annual price appreciation rates would narrow and that is now happening.

Statewide, the annual appreciation rate hit a high of 22.8% during the second quarter of 2004. Since then, it's fallen to 12.4% in the first quarter of this year. Only 5% of homeowners who find themselves in default actually lose their homes to foreclosure.

Most are able to stop the foreclosure process by
bringing their mortgage payments current or by selling their home and paying off the mortgage balance.

According to the Deputy Chief Economist at the California Association of Realtors, if this market continues softening the most risk will be faced by relatively new buyers financed with interest only, straight adjustable or other creative loan products.

While the supply of properties for sale increased in the years first two months and helped mitigate the price increases, it fell in March. Inventory is still lean enough to drive price increases, something that will ease the foreclosure risk.

The underlying economic conditions that five rise to large number of foreclosures are really nowhere in sight. You need to have quite a bit of economic distress and we don't expect that over the near future.