Foreclosures Sink as Home Values Rise

As home values rose across the state, home foreclosures in the third quarter sank to their lowest levels in six years in California, a real estate information firm reported Monday.

Orange County and the Bay Area, two of the hottest real estate markets, recorded the sharpest declines for the three months ended Sept. 30, according to Acxiom/DataQuick Information Systems Inc.

With home values rising, fueled by strong demand and low interest rates, “there aren’t that many distressed households anymore,” Acxiom analyst John Karevoll said.

Throughout the state, lenders started foreclosure proceedings on 28,088 homeowners during the three-month period, a 15% decline from the same quarter last year and the lowest since the fourth quarter of 1992.

“As home values go up, the number of homeowners who owe more on their property than the property is worth goes down. Foreclosure activity would probably be even lower today if it weren’t for the rise of the so-called sub-prime loan category during the past couple of years,” said Mike Ela, head of Acxiom’s DataQuick Products Division.

Home values in California are going up at an annual rate of 7% to 8%, regaining the overall value lost during the recession of 1992 to 1995, the firm noted.

In Southern California, San Diego and Orange counties showed a significant improvement, as foreclosures dropped to their lowest levels since Acxiom began tracking the data at the start of 1992.

Foreclosures in Orange County dropped 37% to 1,379, while San Diego recorded a 20% decrease to 1,370. In Los Angeles County, foreclosures dropped 13.6% to 8,378 homes compared with the same period last year.

In Orange County, the anemic 3.2% unemployment rate and surge in home values combined to push down foreclosures, Chapman University economist Esmael Adibi said.

Adibi said he’s not surprised by the sharp drop. “If you look at those variables, it indicates why foreclosures in Orange County are going down so fast compared to other areas,” he said.

In San Bernardino County, where the upturn in housing prices has been relatively recent, foreclosures declined at a more modest rate of 6.2%. Ventura County recorded a 3.3% decrease.

The Bay Area saw the greatest decline as a region, falling 27% to 3,827 home foreclosures during the last year.

The negative effect of foreclosure activity on sales prices has declined significantly.

While foreclosure homes tugged sales prices down by more than 10% two years ago, the drag is currently less than 4% and is isolated to just a few local markets, Acxiom/DataQuick reported.

With home prices improving, owners can sell their property, pay off their loan and walk away with money, Karevoll said. For homes for which foreclosed proceedings have begun, they eventually could be priced about 7% less.

The survey measures notices of default, which is the first step of the foreclosure process. The entire process takes at least four months and usually results in two-thirds of homes being lost to foreclosure.