by Calculated Risk on 10/27/2013 10:14:00 AM

From DataQuick: California Foreclosure Starts Second-Lowest Since Early 2006

The number of California homeowners entering the foreclosure process fell last quarter to the second-lowest level in seven and a half years. The drop-off is the result of a stronger job market, home price appreciation, and a variety of government foreclosure avoidance efforts, a real estate information service reported.

Lenders filed 20,314 Notices of Default (NoDs) during the July-through-September period. That was down 21.1 percent from 25,747 during the previous quarter, and down 58.6 percent from 49,026 in third-quarter 2012, according to San Diego-based DataQuick.

Last quarter's NoDs were the lowest since 18,568 were filed in the first quarter of this year, and the second-lowest since 18,856 were filed in first-quarter 2006.

"Cleanup of the foreclosure mess is ongoing, but it's difficult to imagine a huge new wave. We still get asked about the long-feared 'shadow inventory' of distressed properties that some people predicted would trigger another big surge in foreclosures. Such warnings, which go back years, often reflected a worst-case scenario and didn't account for the breadth and depth of the government's eventual intervention in the crisis. Lots of legal, regulatory and political hurdles popped up, slowing the foreclosure rate. Then the economy stabilized and home prices started rising," said John Walsh, DataQuick president.

"Still, it's certainly possible that we could see foreclosure activity edge higher again," he added. "It will depend on the economy and how lenders manage their remaining distressed properties, and their success with mortgage modifications."

Click on graph for larger image.

This graph shows the number of Notices of Default (NoD) filed in California each year.   For 2013 (red), the bar is an estimated annual rate (since the California "Homeowner Bill of Rights" slowed foreclosure activity early this year, the estimated rate is Q1+Q2 + 2 times Q3).

 It looks like this will be the lowest year for foreclosure starts since 2005, and also below the levels in 1997 through 1999 when prices were rising following the much smaller housing bubble / bust in California.

Some of the decline in foreclosure starts is related to the "Homeowner Bill of Rights" that slowed foreclosures, some to higher house prices and a better economy - but overall foreclosure starts are close to a normal level (foreclosure starts were over 50,000 in 2004 and 2005 when prices were rising quickly).

Note: Foreclosures are still higher than normal in states with a judicial foreclosure process.