SACRAMENTO, Calif. -- Foreclosures.com, a California distressed property investment advisory firm, says a combination of falling affordability, rising interest rates and persistent unemployment will drive California foreclosure activity up in 2004.
"Only one in four California households make enough money to afford a median priced home in this state," said Alexis McGee, president of Foreclosures.com. "In many California communities, the situation is worse." Ms. McGee cited a January California Association of Realtors report that put affordability at 19% or less in several Bay area counties in the north and as low as 15% in Santa Barbara.
"California markets have stayed hot longer than anyone thought they would, partly because the state has gained more than 500,000 in population each year for the last four years," said Ms. McGee, "but incomes are just not catching up." She went on to say that the disparity between incomes and prices combined with rising interest rates would put downward pressure on home prices this year, and that, she said, would bring an increase in the number of foreclosures.
"We're already seeing a rise in foreclosure activity," said Ms. McGee. "Almost 16,000 California homes went into default in the third quarter of last year, a little over 3% more than in the second quarter." She added that persistent and protracted unemployment was a contributing influence.
"No one economic factor alone will move foreclosure activity off its baseline," said Ms. McGee, "but when you have a confluence of several negatives, more people start losing their homes." She went on to say that the combination of rising interest rates, cooling housing markets, falling affordability, high mortgage balances and long term unemployment are a lethal mix for homeowners already on the edge.
"Santa Clara County is a classic case," said Ms. McGee. She continued, "The unemployment rate there is more than 7%, and was over 8% for the first seven months of 2003. Yet, with a median home price of $491,000, the affordability index there is about 24%. Many homeowners mortgaged themselves to the hilt during the refinance boom. Filings of notices of default have jumped to 18-25 new per day (from 12-15 new per day) in the last three months, and continue to climb. With only one out of four households qualified to look at these homes, can these troubled homeowners quickly sell their way out of foreclosure? It'll be tough to do."
Foreclosures.com has been tracking foreclosure activity, publishing pre-foreclosure property data on their website www.foreclosures.com and assisting investors in California for almost twelve years. The company covers eighteen California counties, plus the metro areas of Phoenix, Ariz.; Chicago; New York City; and all of New Jersey.
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