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Although the foreclosure rate in California soared in the second quarter, it is still not clear exactly how bad this is. It certainly is not good, however in spite of the soaring foreclosure rate, foreclosures are still below normal. In the time period April through June lenders 20,752 default notices to homeowners, up 67.2% from the same period last year. When a homeowner receives a default notice, foreclosure is still quite a way off. After the first default notice the homeowner may still have a number of options before they lose their home to foreclosure. The default notice is sent to a homeowner who is late with their mortgage payments. These statistics have been compiled by the company DataQuick since 1992. The jump in default notices is the largest since DataQuick began compiling these statistics. The quarterly high for default notices files was in the first quarter of 1996 when 59,897 notices were sent out to homeowners. There are a number of other factors that need to be watched. These include the amount of equity the homeowner has in the home and the type of mortgage they have. This default activity bears watching but does not necessarily mean the housing market is about to collapse. Of homeowners that receive default notices, only about 7% actually go into foreclosure and lose their homes. It is not like the market is going to be flooded with homes in foreclosure. However the appreciation of prices is slowing quite a bit. Homeowners who depended on that appreciation to continually refinance and take out equity are the ones that will be feeling the pain. For investors the market bears close watching. Marshall Prentice the president of DataQuick believes the default rate would almost have to double before home values would be affected. The spike in defaults is slowing the appreciation of of home values. In San Diego and Sacramento home values are flat. These are two areas in California that saw appreciation rates soar. San Diego and Sacramento are two areas in California that are vulnerable to falling home prices. In addition to soaring foreclosures, there is more bad news for the California market from southern California. This latest news is related to home sales. Home sales have fallen to their lowest rate in nine years. Along with the slowdown in home sales is the deceleration of price appreciation. The latest July numbers show that 22,712 homes closed escrow in July. This number was down 27% from one year ago. The biggest drop in sales was seen in Ventura and Orange counties Price appreciation slowed to its smallest rate in six years. For the past year the rate of appreciation in southern California was 4.9%. With the slowdown of sales it is becoming clear that home price appreciation is not going to happen for at least the nest two years. It may be that home prices will begin to decline. With the increasing amount of inventory and the slowdown in home prices it is hard to imagine any other scenario except falling prices. This view is even shared by some real estate agents who are telling buyers that if they plan to sell within the next two years, they may have to take a loss.
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