So without further ado... Take a look at this headline and first few paragraphs of this article:
Mortgage defaults tumble in Sonoma County
Press Democrat - July 19th, 2011
Mortgage defaults continue to decline in Sonoma County, dropping this spring to the lowest level in four years, according to a new report.
Between April and June, lenders sent 738 default notices to Sonoma County homeowners who had fallen behind on their mortgages, down 19 percent from the same period a year ago...
With headlines like these across the front-page of our local paper, you could be forgiven for thinking Sonoma County's real estate market is finally turning a corner. Bottom-line: It's not.
But before we get to the data let's take a look at what the Press Democrat was writing about foreclosures exactly four years ago (their benchmark of choice). Take a look at THIS headline and first few paragraphs of the article on the same topic from July 2007:
Foreclosures surge in Sonoma County
Press Democrat - July 24th, 2007
More and more Sonoma County homeowners are falling behind on their mortgage payments, a sign that financial stresses are continuing to build in the region’s real estate market, according to a report issued today.
Mortgage defaults, the first step in the foreclosure process, are the highest in Sonoma County since at least 1992, according to DataQuick Information Systems, a La Jolla firm that tracks real estate trends.
Lenders sent default notices to 462 homeowners in Sonoma County during the second quarter, up 129 percent from the same period a year ago, DataQuick reported.
Meanwhile, 163 Sonoma County homeowners lost their homes in foreclosure proceedings during the second quarter. A year ago, lenders seized 18 homes in foreclosure proceedings during the same period...
2011: April-June = 738 Notice of Defaults
2007: April-June = 462 Notice of Defaults
2011: July PD Article: 'defaults continue to decline in Sonoma County, dropping this spring to the lowest level in four years'
2007: July PD Article: 'defaults, ...are the highest in Sonoma County since at least 1992'
I'd say it's time to go where most real-estate agents and local journalists dare not venture... to the original data back to the bursting of the bubble:
Here is what to take from this graph: WE ARE NOWHERE NEAR A HOUSING RECOVERY IN SONOMA COUNTY!
Yes, notice of defaults (blue bars - the first step in foreclosure) were lower than in Q3 2007.
Hip Hip Hooray!... or not.
Defaults at 738 were actually only 11 less than the 749 defaults in Q3 2007. If you compare the same monthly time frame (April-May-June) defaults were actually up dramatically from four years ago (738 vs. 462). It's also worth pointing out that foreclosures (red bars) at 495 in the spring of 2011 are higher than the 462 defaults (blue bars) in the spring of 2007. How's that for a recovery?
It's fairly obvious looking at the graph that the number of foreclosures and defaults are anything but normal. Back in the good ol' days of 2005 we averaged 140 defaults every three months. And due to artificial housing appreciation less the 15 homes per quarter (yes, less than 15!) were getting foreclosed on as people would simply sell their homes for a gain without the need of sending the residence to the courthouse steps. All that began to change in 2006 when the bubble popped and defaults and foreclosures jumped dramatically. They've shown little sign of abating no matter what the Press Democrat headlines say.
This can be confirmed if you read 13 paragraphs past the recent sanguine headline to a quote by local REO specialist James Madison. When asked about the "improving" numbers he has this to say:
...he [Madison] still thinks several more years must pass before the level of distressed properties drops significantly.
"This isn’t a sign that we’re out of the woods,"...
Another gem buried in the article is that the drop in default notices in recent quarters might have more to do with banks accelerating short sales rather than a sign that less people are falling behind on their mortgages. This can be partially confirmed by the uptick in Windsor short sales this year as documented here by one of Healdsburg Bubble's favorite agents Dave Roberts.
Given the data above it should be clear that housing isn't anywhere near a recovery. Over half the sales in the county are still distressed, the gap between defaults (blue bars) and foreclosures (red bars) represents shadow inventory that will be coming to market in the coming years, while tougher lending standards, high unemployment, and eventually higher mortgage rates will continue to put downward pressure on housing prices for years to come.
On that note, to the right you can see I highlighted one of my first posts on this site with the title: "CBS Report on Why Real Estate Will Continue to Fall Through 2011". At the end of 2008 that sounded preposterous to most. Now it's self evident. Today, I'd venture to say we won't see meaningful appreciation in real estate until 2015, if not a decade.
What this means is that if you're in the market to buy a home and can afford it without burdening yourself with too much debt be my guest. But don't fall prey to the endless chant from the real estate industry telling you "don't wait, buy now".
They always have a reason: take advantage of low rates before they go up (see here), hurry before conforming loan limits are decreased (see here), a home is the best way to invest in your future (see here), etc.
Ask your real estate agent what they think about the foreclosure crisis in Sonoma County and by all means print out a copy of the graph above. Who knows, they may have some direct insight into the matter. As anyone who scans the public notice section of the paper is aware, there are plenty of agents who have stopped paying their mortgage in our area. They know better than anyone: we are far from the end of the foreclosure crisis in Sonoma County.
For that reason home prices will continue their decline.