Foreclosures in California remained flat in 2004 compared with 2003 levels, according to Foreclosures.com, a northern California investment advisory firm specializing in distressed property.
“Of the eighteen counties we cover,” said Foreclosures.com president Alexis McGee, “only three posted increases – Riverside, San Joaquin, and Stanislaus – while the rest of the counties showed essentially the same numbers of defaults or modest declines from 2003.”
McGee added that while fixed rate mortgages remained near historic lows, adjustable rate mortgages were a cause for concern in part because of the ongoing short-term rate increases from the Federal Reserve Bank. “Adjustable rate mortgages move in lockstep with the Fed’s discount rate,” she pointed out. “And the use of adjustable rate loans has reached very high levels as buyers turn to them to qualify for sky-high California home prices.” She said that recent data indicates that as many as 80 percent of home buyers in several California markets have chosen adjustable rate mortgages.
“The Fed raised the discount rate five times in 2004,” said McGee, “and there is every indication that they’re going to keep it up. Several economists say that their target for 2005 is as high as 3.75 percent, 150 basis points above the current level. People who squeezed into a house with a low start rate adjustable loan may get squeezed right out again. We expect defaults to start rising again as home payments increase to the breaking point in many California family budgets.”
McGee pointed to the low affordability level in California housing markets as a key factor in the increasing popularity of the adjustable-rate mortgage. “Only 19 percent of California families can afford to buy a median priced home with a fixed-rate mortgage,” she said. “As prices remain high, and real personal income growth is virtually non-existent, people who want a house are literally forced into using ARMs to qualify for a home purchase.”
In addition to California, Foreclosures.com serves markets in Las Vegas metropolitan area, Phoenix, Chicago, New York metro area and all of New Jersey.
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