Recent reports indicate that the fourth quarter of 2011 (October-December) saw the number of California homes facing foreclosure drop to its second-lowest level in over four years. In total, 61,517 Notices of Default (NODs), the first step in the foreclosure process, were recorded in the fourth quarter. This represents a drop of 13.7% from the previous quarter, and a drop of 11.9% from the last quarter of 2010. The analysis of California’s foreclosure trends was performed by DataQuick, a San Diego-based financial consultancy.
Factors contributing to the drop in foreclosures include new lender policies that have allowed greater flexibility in rescuing or liquidating distressed properties. These include short sales, refinancing, interest rate adjustments, reduction of the principal owed, or as simple a strategy as allowing homeowners more time to improve their financial situation.
In the Bay Area, homes in San Francisco, Marin and San Mateo counties had the lowest likelihood of foreclosure, but Contra Costa County and the Greater Walnut Creek area also showed improvement in numbers of Notices of Default being filed. As you can see in the chart below, Walnut Creek Notices of Default dropped from 44 in November 2011 to 26 in December 2011, a decline of well over 50%.In plain English, this means that far fewer homes took the first step into foreclosure:
On the other hand, Notices of Sale, a later stage in the foreclosure process, climbed from 37 to 46. This most likely reflects the earlier peak in Notices of Default seen August 2011, as homeowners still behind on their payments moved closer to having their homes sold.
Similar trends can be seen across all of Contra Costa County, with Notices of Default dropping from 892 in November to 607 in December, while Notices of Sale climbed from 900 to 1168. But looking back further to December 2010, we can also see that the number of Notices of Sale being filed have dropped in both Walnut Creek and Contra Costa County as a whole compared with a year ago.
Looking ahead further into 2012, as fewer homes enter the foreclosure pipeline, the drop in Notices of Default will eventually be followed by a drop in Notices of Sale as well. Combined with more flexible policies on the part of lenders, this means more homeowners will get to stay in their homes, and could also lead to more stability in the local housing market with fewer distressed properties to drive down prices.
Of course, if the past few years have taught us anything, it’s that predicting where the housing market is likely to go can be a very risky business – so it’s always wise to take even the best charts and data with a grain of salt. But I do think it’s safe to say that for homeowners facing financial challenges, the positive indicators are outweighing the negative ones, and that’s certainly reason for optimism heading into 2012.