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Big shadow over housing?
Lot riding on loan modification efforts
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If loan modification efforts for struggling homeowners prove unsuccessful 2011 could be when the long-feared “shadow inventory” of home foreclosures hit the San Joaquin County market.

That is one of the conclusions of an economic analysis of the county housing market conducted by the Business Forecasting Center at the University of Pacific’s Ebhardt School of Business for the San Joaquin County Council of Governments.

Other expectations outlined in the study include:

•Short sales will continue to rise and should become more prevalent than bank-owned sales over the next two years.

•Uncertainty about the behavior of borrowers with seriously underwater mortgages where loan balances greatly exceeds the current market value of the home that can still afford to make the payments is a wild card in the housing recovery.

•Standard market indicators such as building permit activity, market absorption of available inventory and such are proving to be unreliable indicators of the housing market.

•Financial problems will continue to drive the county housing market for the next one to three years.

•A full-blown recovery in the new housing market will take place over the next five to 10 years accompanied with modest sustainable increases in home values.

Forecasters do not expect a return anytime in the foreseeable future to what happened between 2000 and 2010 when median home prices in San Joaquin County ballooned from $140,000 up to almost $450,000 and then dropped down to $162,000 by the start of 2010. Based on 28 percent inflation over the same time period home prices today should be at $179,000. Instead they reflect a 15 percent growth to $162,000.

CoreLogiuc reported an estimated 65 percent of all San Joaquin County home mortgages were underwater in the first quarter of this year. That translates into 80,000 homes or about four times the roughly 20,000 mortgages that are currently 90-days or more delinquent. Just being underwater, though, doesn’t mean payments aren’t being made. It simply reflects the actual value of a home versus the owed mortgage regardless of the owner’s financial situation and ability to pay.

Forecasters note the underwater mortgages have the potential of extending the foreclosure mess by several more years.

The number of default notices- the precursor to potential foreclosure action - have been on the rise since January while actual foreclosures have declined. While forecasters see no overwhelming evidence of banks holding on to foreclosure inventory or the so-called “shadow inventory” to keep prices from dropping further, they indicate it appears there has been an increase in efforts to not only get homes into loan modifications but to avert foreclosures through short sales.

However should those loan modifications not be successful for the most part the market could be flooded with more inventory hence the feared “shadow” inventory that some real estate experts have talked about.

Notice of delinquencies
in 95337 hits 18 percent
From 2007 through the first quarter of 2010 the number of notices of delinquencies filed on homes in various county areas is as follows:

•Manteca’s 95337 Zip Code, south and west parts of the city, they are at 1,275 or 18.7 percent of all homes.

•Manteca’s 95336 Zip Code, north and east parts of the city, they are at 1,648 or 15.7 percent of all homes.

•Lathrop, they are at 1,644 or 37.2 percent of all homes.

•Ripon, they are at 364 or 8.3 percent of all homes.

•Escalon, they are at 263 or 7.8 percent of all homes.

•Mountain House, they are at 647 or 39.5 percent of all homes.

Notices of delinquencies in Stockton, depending upon the section of the city, range from 11.8 percent to 23.3 percent while in Tracy, they range from 20.9 percent to 25.1 percent.

Other data gleaned from the report include:

•Between Jan. 1, 2007 and Feb. 28, 2010 there were 157,768 single family detached homes in the county and 28 percent or 27,944 received at least one notice of default. Of those, 17,896 were sold as foreclosures, 1,371 were sold at third-party trustee auctions, 1,574 were sold as short sales, 1,847 are now owned by a bank, and 5,368 are at some point in the foreclosure process.

•The 40 percent and 45 percent default rates of homes built in 2005 and 2006 when the real estate bubble peaked are nearly double that of other years in the decade.

•San Joaquin County is not as overbuilt as many other high foreclosure areas such as Merced.

•The vacancy rate in San Joaquin County has increased to 3 percent as reported by the United States Postal Service on long-term 90-day residential vacancies. That, however, has simply risen to the national average.

•The amount of time homes are in the foreclosure process  before they are sold has gone from four to five months in 2007 to roughly double that time in 2010 reflecting banks trying to work with borrowers.

•Foreclosures have dropped from nearly 1,400 a month in August 2008 down to under 500 month or just a little over 100 a week in January. At one point 350 homes a week were going into foreclosure in San Joaquin County.