A weakened economy last year continued to hurt San Luis Obispo County homeowners, causing many to fall behind on their mortgage payments, or worse, lose their homes.
Compared to other communities, San Luis Obispo County has not seen high levels of foreclosure activity, ranking 44 out of the 58 counties in California.
But filings in San Luis Obispo County increased nearly 4 percent in 2010 over the previous year. A total of 3,082 homes were given default notices, scheduled for auction or repossessed by the bank last year, compared with 2,976 in 2009.
That means one in every 38 households faced some type of foreclosure activity, according to RealtyTrac, a firm that follows national foreclosure data.
While many distressed properties have made their way through the pipeline, there could be more pain in the offing this year, said Daren Blomquist, a RealtyTrac spokesman.
Part of that pain is due to San Luis Obispo County being “a little bit behind” where the state is in the foreclosure cycle, Blomquist said. Foreclosure filings in the state dropped nearly 14 percent in 2010 from the previous year.
“Inland California got hit hard first, and we’re starting to see some decreases in activity from a year ago in places like San Joaquin, San Bernardino and Riverside counties, and that’s pushing decreases statewide,” he said. “But SLO County didn’t see foreclosures rise early on like some of the hot spots.”
Foreclosures likely to peak in 2011
Blomquist predicts that the official peak of foreclosure activity here will probably occur this year. Even after the peak, it will take some time for the market to absorb the existing distressed inventory.
The county’s foreclosure activity also is being affected by the recent foreclosure documentation controversy, he said. Some foreclosure proceedings were put on hold last year while federal investigators looked into whether mortgage companies violated laws by falsifying documentation to foreclose on homes.
In December, foreclosure filings jumped more than 43 percent from the previous month, and Blomquist attributes that increase to the temporary foreclosure freeze.
“In California, because it’s a nonjudicial foreclosure process (those processed without court intervention), we believe the issue was not as acute, but the lenders have started to more quickly ramp back up in the processing of foreclosures,” he said.
One economist who watches the county’s economy closely has a more optimistic assessment of San Luis Obispo County foreclosures.
While the county may see “a little wave” of foreclosures as banks clear out their inventory, economist Mark Schniepp said the county will not see much of a surge this year. Lenders, he said, will find it much more advantageous to do short sales, a process by which the bank is willing to sell a home and settle the mortgage debt for less than what is owed.
Moreover, the economy is strengthening, further boosting the real estate market, Schniepp said.
“People are getting more confident about the economy,” he said. “They are realizing housing prices have stabilized and will stay in their properties rather than let them go. If we can just get through 2011, with higher rates of job creation, a lot of this foreclosure issue will be a thing of the past.”
Sellers competing with distressed properties
Until foreclosure activity abates, home sales in the county will continue to be driven largely by lower pricing in the foreclosure segment of the market, real estate agents say.
“If you want to sell, you have to compete (with distressed properties),” said John Donaldson, president of the Paso Robles Association of Realtors. “They are pushing everybody else down.”
Depending on the neighborhood and condition of the home, some distressed homes are now being priced in the low $200,000s or less, he said.
Bank-owned sales in Paso Robles, Atascadero and Templeton accounted for 30 percent of the market last year, compared to 34 percent in 2009, Donaldson said.
With short sales included, distressed properties accounted for 43 percent of total sales last year, down from 45 percent the previous year. Many of the county’s distressed properties are concentrated in the North County.
“Indications are that banks are going to put more foreclosure sales on the market,” he said. “We will have distressed properties for the next few years.”
RealtyTrac’s Blomquist believes that the Central Coast and California as a whole are in for “foreclosure aftershocks in 2011 and even into 2012.”
“It’s not going to be all of a sudden that in 2011 that the housing market is fully recovered,” Blomquist said. “It may be a couple of years’ healing period before the market returns to normal.”