If defaults and foreclosures don't slow down, falling home prices won't stabilize anytime soon in Kern County.

Notices of default have been steadily increasing since May of 2005, and foreclosures have been increasing since July of 2006. From May 2005 to July 2006, most homeowners in dire straits could probably either refinance with a little equity, or sell before getting upside down.

In May 2005, there were 242 Notices of Default recorded. The following May there were 572. In May of this year, there were 1,272. More and more homeowners are falling behind which means we will continue to see the staggering number of foreclosures. Notices of Default have actually been slowing since April, but there have been short fluctuations over the past 3 years. If these continue to drop over the summer, we may start to see a decline in the number of foreclosures by the end of the year.

If the defaults continue at this pace, the foreclosures certainly won't slow down

The market peaked in June 2006 in Kern County, so after that point prices started falling and homeowners started running into problems. In July 2006, there were 17 Trustee Deeds recorded. The following year there were 237 in July, and in June of this year there were 823. There were 408 total for 2006, 3,007 total for 2007, and year-to-date we are at 4,031. Only half the year finished and we are already have over 1,000 more foreclosures than the prior year! During the years of huge price increases, the number of foreclosures kept dropping since most people could get from under their mortgages, but in years with typical price appreciation there have been 2,126 foreclosures per year (from 1995 to 2002). We are already about double that, and if we continue at the current pace, we will be nearly 4 times the normal rate.

If these foreclosures don't slow down, the bleeding won't stop.

Of the 3,760 listings in Kern County (listed in the Bakersfield Association of Realtors system), over 56% are REOs (foreclosures) or Short Sales (homeowners in dire straits). With that many distressed properties on the market, homeowners who are trying to sell their own home have stiff price competition. And, the distressed properties are competing with each other too, further forcing prices down. On the up side, we are seeing many first-time buyers getting into the market now that prices are becoming more affordable. Hopefully they are getting into good fixed-rate loan programs!

How many of the 4,031 Trustee Deeds recorded year-to-date are on the market, and how many have sold this year? There are 1,064 listed for sale, and only 1,525 have sold this year (of which some may have been recorded in 2007). Assuming all the sales were also recorded this year, that leaves 1,442 waiting to enter the market (there may be a handful pending sale which I did not include in either stat).

Interestingly, there are 1,052 properties listed as short sales, but there have only been 166 sales of such properties year-to-date. The short sales aren't competing price-wise with foreclosure offerings and are too difficult to deal with compared to non-distressed offerings, so they end up either losing out and going to foreclosure or the homeowners find a way to keep the home (less likely). 

For now, no amount of bandaging will stop the bleeding. We need a tourniquet!

The Bakersfield Appraiser