Central Valley Leads Nation in Foreclosure Activity

From the Central Valley Business Times:

There was one foreclosure filing for every 315 households in California last month. That’s 2.2 times the national average. The state reported 38,801 foreclosure filings during the month, the most of any state for the sixth month in a row and more than three times the number reported in June 2006.

It’s worse in the Central Valley, which leads the nation in foreclosure activity, according to RealtyTrac’s figures. California cities reported six of the nation's top 10 metropolitan foreclosure rates in June, and the top four spots were occupied by California cities: Stockton, Merced, Modesto and Riverside-San Bernardino. All of the top four cities registered foreclosure rates that were more than five times the national average. Other California cities in the top 10 were Vallejo-Fairfield at No. 7 and Sacramento at No. 8.

From the SF Chronicle (hat tip Fanchew):

"The big variable driving the numbers is the much higher-than-anticipated rate of default of subprime loans," said Rick Sharga, vice president of RealtyTrac in Irvine. Subprime loans, which grew in popularity in the past two years, are loans to people with tarnished credit, as well as loans for 100 percent financing. "The excessive and lax lending practices of the past couple of years of the real estate boom are coming home to roost," Sharga said.
...
Sharga said foreclosure activity this year has accelerated much faster than RealtyTrac anticipated. While it originally forecast that the nation would see about 1.4 million to 1.5 million foreclosure notices in 2007, "Right now, if we run at a flat rate, it will be 1.8 million filings and 2 million isn't out of the question," he said.
...
While not all notices of default result in a foreclosure, Sharga said their rapid rise can still have a material effect on the real estate market. As the number of properties in such a situation increases, banks are more likely to allow the homes to be sold at a loss in a process called a short sale, or to be sold in a foreclosure auction, also at a lower value. That in turn will depress values of nearby homes.

"That has an insidious effect across the state," Sharga said. If one thinks of default notices as the canary in the coal mine, "The canary has wheezed and gasped and is probably being carried out right now," he said.

From voiceofsandiego.org:

A common boom-time rationalization was to maintain that a housing downturn was impossible in the absence of widespread unemployment.

Like all the best rationalizations, this one was formed around a grain of truth. Housing busts take place when large numbers of people are forced to sell their homes. And unemployment is often the culprit in such a situation, as it was in early-1990s San Diego.

The mistake was to assume that job losses were the only potential cause of forced selling. The currently sky-high foreclosure rate in the face of positive job growth demonstrates very clearly that they were not. This time, the forced selling has been the result of years of speculative risk-taking by both borrowers and lenders.

Considering that high-risk loans were still being granted in spades until fairly recently, and considering that such mortgages often take years before resetting into the realm of unaffordability, it seems reasonable to assume that the foreclosure rate will remain elevated for some time to come.