Improper foreclosures could jeopardize the fragile U.S. housing market, a real estate economist told a Santa Rosa audience Wednesday.
“This has a real potential to blow up,” said Robert Kleinhenz, deputy chief economist with the California Association of Realtors.
Kleinhenz spoke at a luncheon of the Women’s Council of Realtors Wine County Chapter.
He said his concerns have grown in recent days as banks have expanded foreclosure moratoriums and state attorneys general have launched investigations into whether loan servicers processed documents without verifying key mortgage details.
The worst-case scenario would be if investors who acquired the loans went on to sue banks over alleged failures that lead to losses on the foreclosed homes, he said. That could further slow a resolution of distressed properties, which already is expected to take several years.
Kleinhenz’s presentation included a recent forecast by the association that California home sales will end the year down 10 percent but will rise 2 percent in 2011.
Median home prices for Sonoma County and the state hit bottom in February 2009, he said, but “the national market just hit bottom a couple of months ago,” in July. He suggested news of the national market has caused worry among local buyers who fear prices will fall further.
In an effort to quantify “shadow inventory” in central Sonoma County, Kleinhenz used data from Foreclosure Radar to count all foreclosure-related properties within five miles of north Santa Rosa. The list of homes included those in default, scheduled for auction or taken back by the banks.
Kleinhenz found more than 1,300 distressed homes between Windsor and Rohnert Park. Even so, he suggested that was a manageable supply based on current sales. He said real estate agents could use such data to help worried buyers and “kind of talk them down from the ledge.”
Banks are unlikely to flood the market with foreclosures as they did in early 2009, he said. That caused a deep slide in prices, and banks suffered because the repossessed homes lost value.
“Nobody is going to benefit from a repeat of that,” Kleinhenz said.
The good news, he said, is that 62 percent of Sonoma County households now can afford a starter home here. The statewide rate is 64 percent, up from 26 percent three years ago.
— Robert Digitale