Even as the economic recovery sputters, the home-mortgage crisis that helped trigger the recession appears to be easing.
Mortgage defaults in California have fallen to their lowest level in three years, market researcher MDA DataQuick said Wednesday. In the Sacramento region, defaults – the first formal step toward foreclosure – have dropped 38 percent in the past year.
Some of the drop-off may reflect an increase in short sales, in which troubled homeowners sidestep the foreclosure process but still lose their homes. But experts said it's also a sign of a housing market that's genuinely improving. A tightening of lending standards also means fewer buyers are taking out loans they can't repay.
"The bad loans have kind of worked their way through," said Warren Adams of Security Pacific Real Estate in Fair Oaks. He said mortgages issued in, say, 2008, are far less likely to go into default than those made in 2006.
Statewide, DataQuick said lenders issued 70,051 default notices in the second quarter, down 44 percent from a year earlier. It was the lowest number since almost 54,000 were issued three years ago.
In the Sacramento region, stretching from Amador to Nevada counties, defaults fell to 6,620. That compared with 10,682 a year ago.
"The market has stabilized in most areas," said DataQuick analyst Andrew LePage. "We're moving further and further beyond the initial problem, which was the subprime loans."
LePage and others said the pool of distressed homeowners remains deep. Some are avoiding default merely because lenders are allowing more short sales, enabling the borrowers to get out of their homes while avoiding the painful foreclosure process. In a short sale, the lender takes purchase offers for less than what's owed on the property.
Nonetheless, "there is a sense that the housing market in general is healing," said Dustin Hobbs, spokesman for the California Mortgage Bankers Association.
The number of homes going into actual foreclosure grew during the second quarter, both statewide and in Sacramento. But that was more a result of timing than anything else, as foreclosure finally caught up with homeowners who defaulted many months earlier.
The cases "tend to pile up and then tend to work their way through the system," LePage said.
The drop-off in defaults "is the leading indicator," said Alexis McGee of Foreclosures.com, a Fair Oaks website for real estate investors. "It's a positive."
Granted, the housing market continues to give off a bewildering dose of mixed signals. Overall home sales are improving, both in terms of volume and price.
DataQuick said last week that June sales in greater Sacramento were the highest since October 2008. Median prices in Sacramento County crept up to $185,000 in June, a 6 percent increase over a year earlier.
Yet much of the homebuying activity is a direct response to the lingering effects of the mortgage crisis. In January, the latest figures available, 58 percent of all home sales in the four-county Sacramento region were "distress sales," including repos or short sales, according to market researcher First American CoreLogic.
Only Riverside and Las Vegas ranked higher than Sacramento for their percentage of distress sales.
At the same time, the new-home market remains in a deep slump. Sales of new homes in California fell 46 percent in May compared to a year ago, the California Building Industry Association said this week. Analysts blamed the April 30 expiration of a federal tax credit for first-time homebuyers, although the state has instituted a tax credit for purchasers of new homes.
With home building still depressed, statewide construction employment has fallen 12 percent in the past year – and 43 percent in four years, a loss of more than 400,000 jobs.
LePage said the weak economy is continuing to pressure homeowners. California's unemployment rate sits at 12.3 percent, Sacramento's at 12.4 percent.
The Sacramento area, still reeling from state worker furloughs, is bracing for the possible fallout from the legislative budget impasse. Gov. Arnold Schwarzenegger has ordered that most state paychecks be cut to the federal minimum wage, although state Controller John Chiang is fighting the order in court.