A significant drop in foreclosures in the first few months of 2012 may be yet another sign that the Sacramento region, like the state as a whole, is emerging from its long economic ordeal.
Foreclosures are now at their lowest level since early 2007, though still high by historical standards. "It's one of many changes in the macro economy that are going in the right direction," said Suzanne O'Keefe, an economist at California State University, Sacramento.
Real estate information service DataQuick released figures Tuesday showing that foreclosures had dropped in Sacramento County by about 28 percent during the first quarter compared with the same period a year ago.
Foreclosures fell by similar or greater rates, year over year, in El Dorado, Placer and Yolo counties, the numbers showed.
Notices of default, which signal the start of the formal foreclosure process, dropped by nearly 9 percent in Sacramento County compared with 2011, and by even higher rates across the region, according to the DataQuick report.
In fact, every county in California saw default notices and foreclosures decline or remain steady in the first quarter of 2012 versus the first quarter of 2011, the San Diego-based information service reported.
Statewide, notices of default also reached a five-year low, the company said, crediting steadying home prices and employment.
DataQuick analyst Andrew LePage said the drop in foreclosures can be partly explained by another set of statistics released last week by the company. Those figures show the median home price in Sacramento gaining slightly year over year for the first time in 20 months – a product, experts said, of ultra-low interest rates and a tight supply of homes for sale.
Falling home prices spur foreclosures, as people despair of ever recouping their investment. The opposite is also true, LePage said. "Just stabilizing home prices makes a significant difference," in the rates of defaults and foreclosures, he said.
The changes are "consistent with a slowly improving economy," LePage said. "The number of people getting in trouble is down. Fewer people are losing jobs, and more people are finding them."
The latest monthly numbers from the state Employment Development Department showed the state adding jobs, including 4,800 new positions in March in the four-county Sacramento region.
Economists say an influx of people looking for work can be a sign that the public is regaining faith in the economy.
LePage said lenders are also putting the worst of the housing crisis behind them. They've already sold many of the foreclosures that resulted from the riskiest lending practices in 2006-07, he said.
"If the economy stays on the mend and the housing market strengthens, we're going to get through the foreclosure problem in two to three years," LePage predicted.
He warned that there's still a big "what-if" hanging over the housing market. Lenders are sitting on thousands of foreclosed homes with thousands more still in the pipeline.
"If lenders decide to work though their backlogs more aggressively, then there goes your price stability," he said. "Inventories will pop up, especially in the most distressed areas," creating downward pressure on prices.
However, LePage said lenders learned from past experience that dumping homes on the market leads to a "vicious cycle" of price declines that isn't in their interest. It's more likely they'll continue to trickle homes onto the market over a period of years, keeping prices relatively flat, he said.
Dustin Hobbs, communications director for the California Mortgage Bankers Association, agreed with that assessment.
"It's not really in anyone's best interest to flood the market suddenly with a wave of foreclosures," the lending industry spokesman said.
Lenders are aware that they will knock down prices – including on bank-owned homes – by selling too many at once in the same neighborhoods, he said. They also don't want falling home prices to drive homeowners into default.
"I don't anticipate any sudden and significant wave of foreclosures," Hobbs said. "The numbers will bounce around and slowly trickle out."
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