Home foreclosures in San Diego County continued a troublesome climb into record territory in June, but analysts say the number has yet to reach a threshold that creates a drag on real estate prices or the economy.
DataQuick Information Systems reported yesterday that during the first half of 2007, San Diego County had 2,896 foreclosures compared with 445 during the first half of 2006, a 551 percent increase.
That sets a record dating to 1988, when DataQuick began tracking foreclosures, researcher John Karevoll said. “A steadily increasing portion of those who get notices of default now are being foreclosed on.”
From May to June, county foreclosures increased from 532 to 657, a 24 percent increase and a record for any month since 1988.
County notices of default, the first step in the foreclosure process that occurs when homeowners begin missing mortgage payments, totaled 8,314 for the first six months of 2007, compared with 3,311 in the same period last year, a 151 percent increase. From May to June of this year, default notices rose from 1,441 to 1,596, an 11 percent increase.
Although foreclosures are spiking, there is no reason for homeowners to panic, Karevoll said.
“California is better off than the nation, and San Diego County is better off than California,” he said. “It still is not a major factor in the real estate market, but if there is a recession, it could become a huge factor.”
Economist Mark Schniepp of the California Economic Forecast agreed that the county is faring well compared with many areas.
“San Diego will be hit hard, but not nearly as hard as Riverside and Sacramento,” he said. “Those areas had significantly more new houses going in, and the foreclosure problem is largely associated with new housing production at the affordable end.”
Agents who sell real-estate-owned homes say they're moving at a pace that hasn't been seen since the real estate recession of the mid-1990s. With no one paying the mortgage, lenders are eager to sell foreclosure homes, said David Cabot, president of the San Diego Association of Realtors. Experts say there are deals but few steals, however.
Banks “don't want to give it away,” said San Diego agent and real-estate-owned specialist Marc Carpenter.
In San Diego County, neighborhoods having some of the region's most affordable housing were hardest hit by foreclosures in the first half of the year, DataQuick reported. The 91913 ZIP code, which includes much of Eastlake and Otay Ranch, ranked highest among areas with 1,000 or more dwellings. The rate there was nearly 12 foreclosures per 1,000 homes. Other areas with high foreclosure rates included southeast Chula Vista, San Ysidro, Spring Valley and City Heights.
Statewide, midyear default-notice figures were at their highest in more than a decade. DataQuick attributed it to “flat or falling prices, anemic sales and a market struggling with the excesses of the 2004-2005 home buying frenzy.”
Across California, foreclosures hit 28,440 at midyear, compared with 3,159 in the first half of 2006, an 800 percent increase. In June, there were 6,861 foreclosures statewide, compared with 5,273 in May, an increase of 30 percent.
Lenders statewide had filed 100,703 notices of default at midyear, up 153 percent from 39,765 for the first half of 2006. Particularly hard hit was neighboring Riverside County, where notices during the second quarter were up by nearly 191 percent. In June, there were 19,834 default notices statewide, a rise of nearly 12 percent from 17,751 in May.
University of San Diego economist Alan Gin said a recession could make the foreclosure problem much worse, but he said there is less than a 50 percent chance that one will occur. While foreclosures are “still a small part of market,” the spike in defaults is worrisome, he said.
“There is no sign that they are on the verge of turning around,” Gin said. “It could take awhile for this thing to shake out.”
San Diego County's home prices remain relatively stable. Last month's median price for all homes, including condominiums, was $495,500, down nearly 2 percent from a year earlier but up $3,500 compared with May, DataQuick reported. Sales activity was down nearly 23 percent last month compared with June 2006.
Too much risk
Gin said lenders had been too willing to make risky loans during the housing boom, but some analysts say buyers must accept responsibility for overextending themselves.
Ryan Grothe thought he was making the right decision when he moved his family into a two-bedroom condo he purchased in Rancho Peñasquitos in late 2005. Their one-bedroom apartment had become cramped, and he wanted a roomier place for their daughter, now 2 years old.
A year and a half after moving into their new home, the Grothes are renting again, unable to make the nearly $3,000 monthly payment on their $370,000 loan and are facing foreclosure.
Also saddled with two car payments and his wife's student loan, Grothe worried that he would have a tough time finding a place to rent as his credit rating worsened. He works as a security officer at two jobs, and his wife is a registered nurse.
“The lenders told us if we didn't do something, our place would go into foreclosure,” said Grothe, who is hoping to sell the condo, but for far less than the purchase price. “We had called both lenders trying to refinance and they said, 'No, the property values are going down and you'd have to fork over money in advance to refinance.'
“I'm upset; I'm really disgusted with everyone involved in selling us this place,” he said. “We told them that we couldn't afford this, that we would need to refinance, we're starting to fall behind, and it just amazes me that they help you get into these places and when you need help, they run the other way.”
As more borrowers find themselves in trouble, they're turning to nonprofit agencies such as Community HousingWorks, which works with strapped homeowners to set up repayment plans.
“We get people who are days away from losing their home, all the way to people who are 30, 60 days late on their loan, and we're even getting folks wanting to get ahead of an adjustment on their payments,” said Gabe del Rio, vice president for lending and homeownership for the agency.
'Time bombs'
Economist Schniepp sees a strong link between foreclosures and the recent meltdown of the subprime lending market. Weak underwriting standards and the heavy reliance on adjustable loans with low “teaser” interest rates put borrowers and lenders on a collision course, he said. The weakest loans were made in 2005 and 2006, and many of them will continue resetting at higher interest rates into 2009, he added.
Subprime loans, which often required low down payments and little or no documentation of income, “had all of these time bombs built in so the borrower can't make the payments,” Schniepp said.
The best solution is for lenders to renegotiate risky subprime loans to keep buyers in their homes, the economist said. In the near term, he expects foreclosures to increase.
Lenders are willing to work with overextended borrowers, though the options available vary, said Jack Haynes, executive vice president of Countrywide Home Loans, one of the nation's largest mortgage lenders.
“For all intents and purposes, we've never had this market condition,” Haynes said. “It's certainly in the best interest of our investors and our borrowers to always look for solutions for every one of these borrowers. That could be refinancing to restructuring the loan.”
Many San Diego County homeowners saw their property values double as residential real estate boomed between 2000 and 2005. Karevoll doesn't expect home equity loans to be affected by foreclosure rates because defaults haven't significantly reduced property values.
G.U. Krueger, an Irvine-based economist, said default activity may slow once weak subprime loans work their way through the system. There could be “a quick kind of flushing out, a kind of a storm that passes quickly.”
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