Nationally, the percentage of mortgaged homes in some stage of foreclosure — called the foreclosure inventory — was 1% in the second quarter (Q2) of 2016, according to CoreLogic. Of more significance, the foreclosure inventory was down from 1.3% of all mortgaged homes a year earlier, a difference of 132,000 homes.
Continue reading for a more regional analysis of foreclosure inventory trends.
The percentage of homes nationwide with a 90+ day delinquency and at imminent risk of foreclosure was at 2.8%, the lowest percentage since 2007, before the Great Recession. This figure is much lower in California, where just 1.4% of homes with a mortgage are 90+ days delinquent.
Editor’s note — Traditionally, lenders commence foreclosure by recording a notice of default (NOD) following 90 days of delinquency on mortgage payments. However, beginning January 2014, mortgage servicers are required to wait until a mortgage is at least 120 delinquent before commencing foreclosure on a first lien mortgage secured by an owner’s principal residence. [12 Code of Federal Regulations §1024.41(f)(1)]
Better times for the Golden State
Here in California, 22,400 foreclosure sales were completed in the twelve months ending June 2016. While this number makes up a large share of the nation’s total foreclosure sales, California is a populous state and encompasses 13% of the nation’s mortgaged properties. In contrast, only 6% of national foreclosure sales took place in California.
Further, California has one of the lowest foreclosure inventories in the nation, with 0.4% of homes in some stage of foreclosure. This is compared to the national average of 1.0%.
On the local level, the San Francisco Bay Area had the lowest foreclosure inventory of 0.1%. Further, only 0.6% of homes were 90+ days delinquent as of June 2016.
The Los Angeles area also has a smaller foreclosure inventory than average at just 0.4%. However, 1.6% of homes have a 90+ day mortgage delinquency, just above average for California.
Low foreclosure rates correspond with regions with low levels of negative equity — when a homeowner owes more on their mortgage than their property’s current fair market value (FMV) — also known as being underwater. For instance, San Francisco has the lowest instance of negative equity in California and it also has the lowest foreclosure rate. Since property values have recovered from the 2008 recession in this part of the state, the necessity of foreclosure has lessened dramatically.
Expect foreclosures to continue to decline through the rest of 2016 and into 2017 as California home prices continue to rise. However, home prices are slowing gradually in response to the state’s decelerating sales volume. Once mortgage interest rates increase in response to actions by the Federal Reserve (the Fed) — expected in 2017 — buyer purchasing power will be reduced and prices (read: home values) will suffer briefly. When this occurs around late 2017, anticipate a small uptick in foreclosures as some homeowners are plunged back underwater — or even deeper below the surface.