As housing price increases slow, more mortgages going into default
By: CHRIS BAGLEY - Staff Writer
Foreclosure activity has edged up in recent months, providing yet another small but clear sign of cooling in Riverside County's housing market. Banks and other lenders sent 1,266 notices of default to Riverside County borrowers in the third quarter, a move that gives homeowners 90 days to catch up on payments before moving towards an auction, according to La Jolla-based DataQuick Information Systems. That number is up from 1,121 in the second quarter and 1,116 notices in the third quarter of 2004.
The shift reflects a return toward historical averages and comes amid signs that Southwest County's real-estate party is winding down.
"Even now, the level of foreclosure activity is unnaturally low," DataQuick analyst John Karevoll said.
Homeowners, particularly first-time homebuyers in suburban markets such as Southwest County, always face a certain amount of financial distress, Karevoll said. That's particularly true now, with adjustable-rate mortgage payments rising faster than salaries. The median monthly payment in October was $2,169, up 20 percent from October 2004, according to DataQuick.
Still, skyrocketing home values through much of 2003 and 2004 allowed borrowers to avoid default. As a last resort, Karevoll said, borrowers could sell their home to pay off a loan, and still have cash left over. But with appreciation tapering off, more borrowers are hanging on until the bitter end, hoping to bring loans current.
If they don't do that within 90 days of receiving a default notice, the lender can issue a notice of trustee sale. That gives a borrower 21 days to pay off an entire loan before the house is auctioned away.
Because of the weeks-long periods between the stages of foreclosure, borrowers' financial distress doesn't show up immediately. Karevoll said the slight rise in default notices in the third quarter reflects difficulty in the first three months of the year, when home prices were rising at annual rates of 15 to 30 percent.
The median home price in Riverside County rose 20 percent in the 12 months to October, DataQuick reported last week. Prices in most Southwest County ZIP codes rose 5 to 15 percent over the year.
The slowdown hasn't yet led to more foreclosures; last quarter in Riverside County, only 53 such notices were issued, a lower number than in recent quarters. Given typical lags between default notices and trustee sales, those numbers could rise in the fourth or first quarter, Karevoll said.
Lenders issued 47 such notices to borrowers in San Diego County in the third quarter, nearly double the 26 that were issued in the second quarter. That reflects the San Diego real-estate market, where appreciation in home values began to slacken last year, Karevoll said.
Local real-estate agencies are preparing for clients in such difficult straits, however. Century 21 Wright, for example, recently offered its agents an hour-long seminar on short sales, or sales for less than the outstanding value of the mortgage. Such sales are sometimes forced when a borrower is unable to make payments on his loan yet isn't able to turn recoup costs because the house has depreciated since its purchase.
Such depreciation is extremely rare among Southwest County homes, but there are small, isolated causes for concern. For example, the 39 homes that resold in Sun City's 92586 ZIP code last month brought a median price of just $248,000, about 5 percent less than the median sale price in October 2004. That doesn't mean that particular homes are depreciating, but it is evidence of a generally weaker real-estate market.
If the market does weaken, inland buyers may be the first to take it on the chin. First-time buyers in outer suburbs are more likely to go into default or even foreclosure, Karevoll said. They also tend to use more non-traditional loans with lower down payments or that require only interest to be paid off for the first year or two.
"If you have 20 percent of your property at stake, you'll be much less likely to let it go into foreclosure than if 5 percent is at stake," Karevoll said.
Contact staff writer Chris Bagley at (951) 676-4315, Ext. 2615, or cbagley@californian.com.
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