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Jim Klinge
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Posted by on Aug 13, 2012 in Bottom Talk, Shadow Inventory | 5 comments | Print Print

How Much Longer?

Excerpted from this AP article:

LOS ANGELES — U.S. homeowners are getting better about keeping up with their mortgage payments, driving the percentage of borrowers who have fallen behind to a three-year low, according to a new report.

Some 5.49 percent of the nation’s mortgage holders were behind on their payments by 60 days or more in the April-to-June period, the agency said. That’s the lowest level since the first quarter of 2009.

Home prices need to recover further for the delinquency rate to decline.

Foreclosure hotbeds Arizona and California each saw marked improvement during the second quarter.  California’s mortgage delinquency rate fell nearly 22 percent to 6.13 percent from a year earlier, while Arizona’s declined 21 percent to 6.14.

TransUnion’s research is culled from its database of 27 million anonymous consumer records.



Let’s do the math to examine the gap between 60-day-or-more delinquencies and defaulters in SD, and try to estimate how much longer this environment will last.

According to, there are 362,087 homes with mortgages in San Diego County.  Using the California ratio of 6.13%, there should be around 22,195 homes that are more than 60 days late on their mortgage payments.

How many are in default currently in SD County?

NOD = 5,097

NOTS = 6,036

Total = 11,113

Only half of the delinquents have been served their notice.  With servicers now claiming to process loan-mods within 30 days, if you are more than 60 days late, aren’t you already on your way out?

Foreclosed in 2012 = 4,000/7.5 months = 533 per month (July had 482 foreclosures)

Short sales closed in 2012 = 4,962 = 662 per month (In July we closed 712 short sales)

San Diego County Average Free Rent, days (in green)

Bottom Line:

The combined foreclosure/short-sale machine is clearing roughly 1,200 properties per month, which means that we have about 9-10 months’ worth of known defaulters to clear out. But we can estimate that are another 11,000 roughly who are more than 60 days late, and with the California Homeowners Bill of Rights expected to stall the machine further, I think it is safe to say that we have a minimum 2-3 years left of this madness.  It wouldn’t surprise me if it ends up 5-10 years either!


  1. Great post. I think recovery will be a little sooner, due to the feedback effects of increasing prices, bringing people out from underwater, fewer foreclosures, fewer short sales, better comps, more regular listings, a virtuous cycle, which we are seeing forming now reflected in the drying up of inventory.


  2. It’s definitely going to be a long drawn out process. The biggest group of new defaulters are FHA loans and since the government gets to decide foreclosure on those I expect to see many more years of free rent. FHA Foreclosures would come through HUD if there were any and as far as I know there’s virtually nothing coming out of HUD in San Diego.

    I think the hot money investors chasing yield are going to be ones that cause the next crisis. When they decide that managing residential rental property in CA wasn’t as easy as their models predicted they’ll dump those properties and chase something else.


  3. The average statewide default rate is exactly that, an average. My guess is the rate is higher in the Inland Empire than it is in San Diego County. The buyers out there are not as strong, there was a lot of new building at the peak, and values dropped more. At 5 percent, there would only be 7,000 properties 60 days behind and not yet noticed. At 4 percent, fewer than 3,400. As we know, a percentage of those will cure the default, some will short sale, and some will be foreclosed.

    The normal market default rate is not zero. Furthermore, prices continue to solidify, especially at the lower end. My guess is this will drag on for awhile, but the properties in default will have less influence on overall values as time goes on.


  4. I’ll live with that but how many aren’t being reported? If banks can decide to not foreclose, they can decide to not report delinquencies too.

    They own us now.

    I don’t think properties in default have any effect on overall values in NSDCC, except for the fraudulent short-sales which continue to run unabated.


  5. Hi Jim,

    Thank you for your informative website.

    I have a question: When you say “drag on for another 2-3 years minimum,” do you mean that it will take that long for foreclosure/shortsale inventory to clear out? Or do you mean it will take that long for prices to return to what they would be by now if the bubble had never happened? I have a condo that sold in 2002 for $129,000. In a normal market, it would be worth about $190,000 by now. Can I expect that in 2-3 years it will be?



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