by Calculated Risk on 8/03/2006 01:41:00 AM

DataQuick reports: California Foreclosure Activity Hits Three-Year High

Lenders sent 20,752 default notices to homeowners statewide during the April-through-June period. That was up 10.5 percent from 18,778 the previous quarter and up 67.2 percent from 12,408 in the second quarter of last year, DataQuick Information Systems reported. Last quarter's year-over-year increase was the highest for any quarter since DataQuick began tracking defaults in 1992.
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Despite the second quarter surge, defaults remained below historically normal levels. On average, lenders filed 32,762 notices of default each quarter over the past 14 years. Last quarter's 20,752 total was the highest since 25,511 were filed in first quarter 2003.

"This is an important trend to watch but doesn't strike us as ominous," said Marshall Prentice, DataQuick's president. "The increase was a statistical certainty because the number of defaults had fallen to such extreme lows. We would have to see defaults roughly double from today's level before they would begin to impact home values much."

"We hear a lot of talk about rising payments on adjustable-rate loans triggering borrower distress," Prentice continued. "While there's no doubt some of that is going on, as far as we can tell the spike in defaults is mainly the result of slowing price appreciation. It makes it harder for people behind on their mortgage to sell their homes and pay off the lender."
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Foreclosure activity hit a low during the third quarter of 2004, when lenders filed 12,145 default notices. That year California home prices rose at an annual rate exceeding 20 percent. This year annual price gains have slipped into single digits in many of the state's larger housing markets. Last month San Diego and Sacramento counties saw their median home prices dip about 1 percent compared with a year ago. Second quarter defaults shot up about 99 percent in San Diego County and 109 percent in Sacramento County from last year.

Still, today's statewide foreclosure activity amounts to about one-third of the peak level in the first quarter of 1996, when 59,897 defaults were filed. The state was in a housing slump back then and foreclosure activity tugged home values down by about 10 percent in some areas.