Real Estate Research Firms Find CA & AZ Defaults Are Soaring

Default Research and Foreclosures.com, two real estate research firms that specialize in studying the rises and falls of foreclosures and defaults, have released reports that ultimately say the same thing: foreclosures and defaults are on the rise in California and Arizona.

According to Default Research, the number of foreclosures are continuing to soar throughout California, and in Arizona, Pima and Maricopa counties have seen an increase of 40% and 30%, respectively, since January.

"Investors looking to profit and help homeowners in financial distress can ride into California and parts of Arizona and capitalize on the spiking foreclosure market," said Serdar Bankaci, president and CEO of Default Research.

"Many people are focused on Southern California as the 'hot spot' of foreclosure activity due to the sheer numbers of foreclosures, but Northern California has seen increases, percentage-wise nearly as high as Southern California," he added. "In fact, there has been an average increase in foreclosure of 50% since the beginning of the year."

Similarly, Sacramento, Calif.-based real estate investment advisory firm Foreclosures.com reports that home prices in several major California markets had started to fall as a long-awaited price correction in overheated coastal markets began.

"We're not going to see a price crash like we did in the early '90s," said Foreclosures.com president Alexis McGee. "Back then, overbuilding by developers led to excess inventory and what we call competitive liquidation of unsold new homes. This time, the inventory just isn't there."

Default Research asserts that in Southern California, San Bernardino County has seen the highest increase (approximately 5%) while Los Angeles County has remained relatively stable since May. The high foreclosure rate in California is mainly due to adjustable-rate mortgages. That is, any rise in interest rates brings higher mortgage payments ranging from $200 to nearly $1,000 a month.

"These slight changes in mortgage rates may seem small, but the impact can be huge on a family on a fixed income," said Mr. Bankaci. "That slight increase could bring the large and unfortunate problem of foreclosure."

It does not however, have to bring families to a total financial breaking point. In fact, it opens up an opportunity for an investor to purchase a property for cheaper than market value and help a family out of a "sticky" financial situation.

"One 'hot' place in Arizona for investors to come in and help the foreclosure problems is Maricopa County, more specifically Phoenix," Mr. Bankaci added. "We saw the foreclosure activity remain stable for the first quarter of the year and now it is beginning to rise - plus, in my opinion, it is a great place to live."

According to Ms. McGee, in Arizona a little more than 8,000 properties were in foreclosure, with almost 6,000 in the Phoenix area. "You have to understand that 65% of Arizona's population lives in Maricopa County. What we're seeing across the West is that most foreclosures are occurring in major urban centers," she said.

Defaults in several Western markets, according to Foreclosures.com, are on the rise as markets cool down and interest rates move up. "In Colorado, about 4,200 properties went into foreclosure in May. As of mid-July, about 10,500 properties have entered foreclosure," said Ms. McGee, adding that Colorado was a bit behind the rest of the nation in economic recovery, but was strengthening.

Ms. McGee added that rising foreclosure activity was a function of cooling housing markets. "Too many people have been using their homes as ATM machines to manage consumer debt. Now that interest rates are coming back up to normal levels, the refinance window is closed to these people and they are being squeezed by rising home payments." (c) 2006 Mortgage Servicing News and SourceMedia, Inc. All Rights Reserved. http://www.mortgageservicingnews.com http://www.sourcemedia.com