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Foreclosure rate for California homes slows, eases fears of housing recovery hit
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SAN DIEGO (AP) — Home foreclosure activity in California has fallen to five-year lows, easing concerns there might be a flood of distressed sales to slow or even reverse the housing market's recovery.

There were 54,615 default notices filed on houses and condominiums from April through June, down 3.6 percent from 56,633 during the second quarter of last year, according to research firm DataQuick. It was the lowest tally since the second quarter of 2007 and down 60 percent from the peak of 135,431 in the first quarter of 2009.

An improved housing market and a "burning off" of loans from the peak of the housing bubble between 2005 and 2007 has contributed to the drop, DataQuick said. Also, more homeowners with troubled mortgages are turning to "short sales" — transactions in which the sales price is below the amount owed on the property.

The numbers provide more evidence that California's housing market is on the mend even as doubts persist that foreclosures may rise again.

"The big caveat is there are still a lot of people in trouble and it's not clear how many will be foreclosed upon," DataQuick analyst Andrew LePage said Tuesday.

Foreclosures may spike for six to nine months if lenders got "really aggressive about flushing all the distress through the system," LePage said.

Eric Sussman, an accounting and real estate lecturer at University of California, Los Angeles' Anderson School of Management, said banks were unlikely to unleash a new wave of foreclosures, partly because they would face political backlash in an election year.

In foreclosure-battered inland stretches of Southern California, the governments of San Bernardino County and two of its cities are considering a plan to condemn properties with troubled mortgages, which would prevent banks from forcing defaults.

Buyers are finding slim pickings throughout California, leading many analysts to believe California can absorb an uptick in foreclosures.

The California Association of Realtors' index of unsold inventory stood at 3 1/2 months in June, down from 5.1 months a year earlier. The figure represents how long it would take to sell all existing single-family homes at the current sales clip. Supply in a normal market is considered to be six to seven months.

"Investors are snapping up these homes short of foreclosure," UCLA's Sussman said.

Foreclosures totaled 21,851 in the second quarter, down 48.5 percent from 42,465 for the second quarter of 2011, DataQuick said. Like default notices, it marked the lowest since the second quarter of 2007.

Default notices — the first step in the foreclosure process and a leading indicator — dropped sharpest in the San Francisco Bay area during the second quarter, plummeting 13.4 percent from last year in the nine-county region.

Notices in seven counties of Southern California fell a modest 1.8 percent, as improvements in coastal regions, particularly Los Angeles County, were nearly offset by continued struggles in foreclosured-battered inland areas.

Notices fell across price categories but neighborhoods with the least expensive homes continued to struggle most, DataQuick said. ZIP codes with a median sales price below $200,000 had nine notices for every 1,000 homes. The ratio dropped to 5.6 homes in areas with median sales prices between $200,000 and $800,000 and to 2.2 homes in areas with a median sales price above $800,000.

DataQuick reported last week that the median sales price for new and existing single-family homes in California reached in highest level in more than two years in June, largely because foreclosed properties were a smaller part of the overall sales mix. Homes that had been foreclosed upon during the previous year accounted for 25 percent of existing home sales, down from 35.1 percent a year earlier. Foreclosed homes tend to sell at a steep discount.

The most recent figures from the Mortgage Bankers Association show fewer Californians are behind on home payments. At the end of March, 6.38 percent of loans were at least one payment late, down from 8.31 percent a year earlier.