Hard Hit California Housing Market Rebounds as Home Values Rise

It appears that one of the nation's largest and most troubled housing markets is getting back to normal.  According to data released by DataQuick, Notices of Default (NoDs), the first step in the foreclosure process, on California houses and condos fell 22.1 percent in the fourth quarter of 2012 compared to the third quarter and were down almost 38 percent from the fourth quarter of 2011.  California homeowners were a median of eight months behind on their payments when the lender filed the Notice of Default and owed a median $14,364 on a median $308,885 mortgage.

The 38,212 NoDs recorded in the quarter was the lowest since the fourth quarter of 2006, near the beginning of the foreclosure crisis.  Quarterly filings in the state peaked in the first quarter of 2009 at 135,431.  

DataQuick attributed the decline in early foreclosure filing to rising home values, an improving economy, and a shift toward short sales which accounted for an estimated 26 percent of statewide resale activity in the fourth quarter.  The median price paid for a home during the quarter was $300,000, up 22.4 percent from a year ago and 32.2 percent off the median's $227,000 bottom in first-quarter 2009.

"Home values increased through most of 2012, and the rate of increase picked up toward the end of the year. That means fewer and fewer homeowners are underwater, where they owe more than their homes are worth. That in turn means they can sell and pay off the mortgage, or perhaps refinance at today's low interest rates. This trend alone suggests we'll see a continued decline in foreclosure rates this year. Another factor is the foreclosure-avoidance goals of various settlements between lenders and the government," said John Walsh, DataQuick president.

NoD filings fell in all home price categories but default rates were higher in California's most affordable neighborhoods.  Zip codes where 2012 median sale prices in the fourth quarter were below $200,000 collectively saw 5.5 notices filed for every 1,000 homes while the ratio was 3.5 NoDs per 1,000 homes in zip codes with $200,000 to $800,000 medians and 1.3 per 1,000 where the median is above $800,000.  The same disparity was evident with foreclosures which declined in frequency as the median price in the zip code increased.

Foreclosure resales accounted for 16.6 percent of all California resale activity last quarter, down from 20.0 percent the prior quarter and 33.6 percent a year ago. It peaked at 57.8 percent in the first quarter of 2009.

Most of the loans going into default are still from the 2005-2007 period with the median origination quarter being the third-quarter 2006. That has been the case for three years, indicating that weak underwriting standards peaked then.

California has been among the hardest hit states in terms of foreclosures, ranking in the top five in RealtyTrac's accounting of foreclosure activity nationwide for most of the last six years.  While 1.1 million of California's 8.7 million houses and condos have been involved in a foreclosure proceeding the past five years, 780,000 were actually lost to foreclosure. The other 320,000 were either sold, or the payments brought current.