Foreclosures.com, a northern California investment advisory firm specializing in distressed property, said today that persistently low interest rates have postponed a surge in California foreclosure activity, but that the risk of more defaults in the near future remains.
“High demand for the 10 year T-bill is keeping yields low, and that means low mortgage rates as long as that keeps up,” said Foreclosures.com president Alexis McGee. She pointed to the fact that 28.5% of the February 11 auction of new 10-year notes was bought by indirect bidders that include foreign banks. “Both China and Japan have been heavy buyers of dollars to keep their exports to the U.S. cheap. Then they recycle those dollars back into our treasuries,” Ms. McGee said.
She went on to say that housing markets have become a mirror image of bond markets in that California home prices are now supported primarily by the low cost of mortgage money. “Home prices will move in the opposite direction of interest rates. When rates go up, prices will come down.”
Ms. McGee said that foreclosure activity in California continued to be at or near normal baselines in both north and south. “There are always non-economic reasons for foreclosure,” she said, “such as illness, disability, death, or divorce. In the eighteen counties we serve, there were 108,189 notices of default filed in 2003 and 2004.”
Ms. McGee said it takes some kind of economic event or tax law change to drive foreclosure activity off baselines. “We believe some event outside the U.S. will start rates upward this year.”
Ms. McGee said that recent data showed that 80% of homebuyers in some southern California markets, and 65% in the Bay Area have chosen adjustable mortgages to qualify for expensive homes. “With income growth offset by inflation, they’re extremely vulnerable to default.”
Foreclosures.com has been tracking foreclosure activity and assisting investors since 1992. In addition to most major California counties, the company serves markets in Phoenix metro, Las Vegas metro, Chicagoland metro, New York metro, and all of New Jersey.
