Foreclosure home sales dropped significantly in the third quarter of 2012 (3Q 2012). The number of real estate owned property (REO) resales experienced an equally dramatic drop from the first quarter. Notice of default (NOD) filings decreased as well.
REO resales are down
23,000 REO resales took place in the 3Q 2012. That is:
- one-fifth of all California resales;
- down 32% from the prior quarter; and
- down 38% from one year earlier.
Individuals, rather than the lender or the government, bought 39% of homes sold at trustee’s sales. This is an increase of 31% from last year. This third-party high-bidder situation indicates speculators remain strangely optimistic about a future rise in resale pricing.
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NODs decrease
49,026 NODs were recorded in California in 3Q 2012. That is:
- down 7% from the prior quarter; and
- down 31% from one year earlier.
NOD volume peaked at 135,431 NODs recorded in the first quarter of 2009.
An average of eight months passes between an NOD recording to trustee’s foreclosure sale in California. This is up very slightly from the prior quarter and down from one year earlier.
Foreclosures ride the bumpy plateau
22,949 trustee’s deeds were recorded in the third quarter of 2012. That is:
- up 5% from the prior quarter; and
- down 41% from one year earlier.
Until September’s uptick, California had experienced 18 months of continuous decline in foreclosure sales.
Foreclosure sales occur most often among low-tier homes. Zip codes with median sale prices below $200,000 saw 4.8 homes foreclosed per 1,000. Zip codes with median prices between $200,000 and $800,000 saw only 2 foreclosures per 1,000. Foreclosures were less than one per thousand in areas with average prices over $800,000.
The overall trends still favor a gradual decrease in foreclosures until interest rates begin to move up, probably in 2015. However, foreclosures won’t return to pre-recession levels without increased employment and home prices. If it happens, reverse eminent domain will help cut the foreclosure rate even more. This will (hopefully) slow the drop in homeownership and stabilize home prices.
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Consistently, 41% of all NODs currently go on to trustee’s sale. Projecting this forward, foreclosures will be down in the next 2-3 quarters, as expected. Based on the number of NODs in Q3 2012, around 20,000 foreclosures will occur in Q2 2013. The recent large drop in foreclosure sales reflects a similarly large drop in NODs in 4Q 2011 and1Q 2012. This lag is due to the eight-month foreclosure process.
Among California’s largest counties, the greatest one-year drops in foreclosures took place in Orange (-47%), Sacramento (-46%), Contra Costa (-46%), Los Angeles (-43% )and San Diego (-41%) counties.
Short sales: a new fad?
30,000 short sales closed in 3Q 2012. That is:
- one-fourth of California resale activity,
- up 3% from the prior quarter, and
- up 20% from one year earlier.
Short sales are swiftly eclipsing foreclosures as the main route out of negative equity. Lenders go with this “Plan B” to avoid taking on additional REO property.
What’s in store?
Although steadily decreasing, foreclosures will remain higher than average due to negative equity in around 2 million homes. For most underwater homeowners, future home price increases will not create positive equity soon enough to dismiss the idea of strategic default or a short sale. Eventually, large numbers of these homeowners will default out of frustration, or a simple lack of money.
Re: California Foreclosure Activity Lowest Since Early 2007 from DataQuick
FORECLOSURES IN DISGUISE?
Yes, those of you who believe the short sales are the foreclosures in disguise are probably right. Homeowners are taking what they perceive is a less damaging way out, and the banks are cooperating (though slowly) just to relieve themselves of what could be way too many foreclosures to handle.
ARE SPECULATORS OPTIMISTIC?
The author comments that speculators remain strangely optimistic about future price rises. Could it be that they a are not necessarily optimistic on price rises but are pessimistic on the future value of the dollar?
There are guesses both ways by equally reputable sources—will the dollar strengthen as the world economy weakens or will it weaken?
Many investors believe in a dollar that will someday become worthless. Perhaps they are jumping with both feet into real property and other hard assets because of that, not because they expect future jumps in home prices? People rushing into precious metals is another example of such belief.
Will anyone venture a guess? If hyperinflation did hit (and some are predicting deflation as the economy falters further) would housing values and home prices skyrocket too?
ed is most certainly NOT mistaken. the return to underwriting has removed the entire ship of fools that were the trainloads of buyers that couldn’t buy lunch without a cosigner. those buyers are gone FOREVER. the return of 2005 prices will take decades of the typical 3-4% appreciation that is the natural order of things
add the likelihood of higher rates and the pool of qualifiers thins more…affordability is the key to buying…foks buy what they qualify for, the bubble of 2005 was a true bubble…no justifiable reason for 250K homes to be crossing the boards for a HALF A MILLION….except that the lenders were making loans to paupers and liars. they have stopped that.
Is there a program for forclosure casualties to purchase a home in the near future?
Ed is mistaken!
It is a fact that prices will someday increase to the levels they were in 2005. Consider this; before sub-prime mortgages real estate appreciated ( due to inflation) 100% every 10 years (between 1970 and 2000). Sub-prime mortgages caused real estate to double in price in 5 years from 2000 to 2005. Now this has been corrected.
Real estate prices will get back to the 2005 levels in 10 years from now.
Foreclosures are down because the government is involved and short sales have taken over the market. There are still plenty of distressed properties out there, not the shadow inventory, I don’t believe it exist in the numbers the powers that be want you to think. I’m talking about people who are still living in their homes.
If anyone thinks home prices will increase to 2005 levels, I have some beach front property in Montana I want to sell them. The only thing that is going to make prices go up that much is the same thing that got them there in the first place…sub-prime loans.
Low foreclosures, bad news for realtors that sold only REO. Means mortgage Refi is back.2 years of making new money. but as for the negative equity in homes that did modifications with low rate and deferring the negative equity as balloon payment in 5 years hoping that the price of homes will reach the peak as it was in 2005.
I think that the government will implement new laws forcing banks to comply and forgive that balance, and if not then its another story.
No