Foreclosure Stats Obscure Recovery in California Markets

Modesto's city motto. Photo by Carl Skaggs.On August 30, RealtyTrac released its second-quarter Foreclosure Sales Report. As it turns out, California dominates the list of foreclosure-heavy housing markets. But that may not be a bad thing.

Nationwide, the total number of foreclosure sales dropped 12% from the first to second quarter of this year. Compared to last year, foreclosure-related sales were down by 22%.

This marks the first annual decrease in distressed sales after five consecutive quarters of increases. This is according to data published recently by RealtyTrac, a foreclosure-tracking service.

California Cities With the Highest Percentage of Foreclosure Sales

RealtyTrac’s quarterly report also provided a list of U.S. metro areas with high levels of foreclosure-related sales, relative to the total number of residential sales. California cities dominated this list, taking seven of the top ten spots.

Below, you will find a list of California real estate markets that appeared in the top ten. The number beside each metro area indicates the percentage of foreclosure-related sales, as a portion of all home sales. In Modesto, for example, 57% of all real estate sales during the second quarter of 2012 came from foreclosures.

  • Modesto (57%)
  • Stockton (54%)
  • Riverside-San Bernardino-Ontario (47%)
  • Bakersfield (46%)
  • Sacramento (45%)
  • Fresno (44%)
  • Oxnard-Thousand Oaks-Ventura (39%)

Out of the 100 largest U.S. metro areas by population, Modesto, California had the highest percentage of foreclosure sales during the second quarter of 2012.

Of course, this list may come as no surprise. These cities, and others in California, have long been referred to as “ground zero” for the housing crisis. In some of these cities, entire neighborhoods became vacant during the housing crash. Consider this recap from the City of Modesto’s Neighborhood Stabilization Program:

“Unemployment has drastically increased and foreclosure filings have risen considerably over the last two years. There are areas where the majority of the neighborhood is vacant. Developers abandoned lots, and homes are empty. Vagrants have vandalized homes, blight has increased and entire neighborhoods are distressed.”

Given the devastation that occurred in these areas, it’s only natural to see a higher percentage of distressed sales. But that doesn’t mean these California real estate markets are still in decline.

Having a high percentage of foreclosure sales is not necessarily a bad thing. In places like Modesto, you would expect to see a high level of distressed sales. That’s what is out there, in terms of inventory. It’s only natural for the composition of housing sales to reflect the composition of housing inventory.

The first step to recovery is to get those distressed properties off the market. They need to be purchased and lived in. Conditions won’t improve in these housing markets until foreclosure inventories come down.

Additionally, a high percentage of foreclosure-related sales doesn’t always correspond to an increase in the total number of foreclosure-related sales. In the RealtyTrac report, the authors pointed out that “although foreclosure-related sales as a percentage of total sales increased, the raw number of foreclosure-related sales in the second quarter decreased.”

Statewide, California foreclosure sales decreased by 10% during the second quarter.

Real Estate Turnarounds in Modesto, Bakersfield and Elsewhere

Looking at the foreclosure numbers alone, you’d think these California real estate markets were still struggling. But that’s not entirely true. In fact, California is currently undergoing a statewide housing recovery. It’s happening faster in some cities than others. But it’s happening.

In RealtyTrac’s report, Modesto was singled out as having the highest percentage of foreclosure-related sales in relation to the total sales volume. Does that make it a weak housing market? Hardly. In fact, one could argue that Modesto is currently in a state of accelerated recovery.

Consider these data points: The median sales price for the Modesto area has risen over the last year, according to data provided by both Zillow and Trulia. CoreLogic, a financial analytics firm, recently reported that Modesto home prices (including distressed sales) rose by 4.4% from July 2011 to July 2012.

Bakersfield was also in RealtyTrac’s top ten for highest percentage of foreclosure sales. But consider this: According to, the number of homes for sale in Bakersfield declined by 44% from July 2011 to July 2012. List prices rose by 7% during the same period. Homes are selling faster, too. In fact, with a 35-day median age of inventory, Bakersfield is one of the fastest-moving real estate markets in the country right now.

Similar rays of light can be found for almost every real estate market in California. In terms of market strength, the Golden State is starting to shine again. You just have to step back far enough to see it.