July 2008

Defaults and Foreclosures at Record Levels
By Sara Sutachan, Senior Research Analyst

Statewide sales in June marked a year-to-year gain for the third consecutive month, following a 30-month string of year-to-year percentage decreases that began in October 2005. With 420,550 home sales in June, the market saw a marginal decline of 0.7 percent compared to May sales of 423,700 homes, but rose 17.5 percent compared to June 2007 sales of 357,890 homes. In year-to-date terms, sales are below last year’s levels by 9.9 percent, a figure that should improve if the current sales trend is maintained through the rest of the year.

The median price for June was $368,250, declining 4.3 percent from the May median of $384,840 and decreasing by a record 37.7 percent from the June 2007 median of $591,280. The large decreases in the median are for the most part due to the dramatic change in the mix of sales since the onset of the Credit/Liquidity Crunch and the increase in the share of distressed sales, which have cluttered inventories for several months.  According to data from DataQuick Information Systems, the number of defaults on loans in the state totaled 121,340 in the first quarter of 2008, up 125 percent from 53,940 in the first quarter of 2007. The number of foreclosure resales in California exceeded 63,000 in the second quarter of 2008, up 261 percent from 17,500 one year earlier. However, the default rate seems to be slowing as it was up only 6.6 percent from the first quarter of this year, which is an indication that the number of loans in default may be slowing down.

A recent C.A.R. analysis of county median prices and default rates (using statistics from Dataquick) shows that the number of defaults tends to be lower in higher priced counties such as Marin, San Francisco, San Mateo, Santa Clara, and Santa Cruz counties where the median price is well above $500,000.  Default rates in these areas were below 5 per every 1,000 housing unit.  Areas with lower median prices such as Riverside, San Joaquin, Stanislaus, Merced and others show much higher defaults rates. Defaults in Merced County were over 21 per 1,000 housing units, the highest for all counties but also had the lowest median price at just over $200,000. San Joaquin County also had a high default rate at 20.8 defaults per 1,000 housing units, also with a relatively low median price in the high $200’s. The accompanying graph shows the median price of each county and the corresponding number of defaults per 1,000 housing units.



The hardest hit areas overall are the inland areas such as the Inland Empire and Central Valley, where there was room to build, a high rate of sub-prime loans issued, and lower price points.  These areas are now taking the brunt of most of the defaults and foreclosures reported. Although the number of defaults statewide hit a record high in the second quarter, the ultimate impact in terms of foreclosures, short sales, and REOs will most likely play out in the next three to six months. Stay tuned for next month’s article where we analyze the steps of the foreclosure process.

To learn more about our Trends Newsletter, please contact the Research & Economics Department at  research@car.org or (213) 739-8352.