While foreclosure starts in California bumped up in the second quarter, the number of homeowners entering foreclosure in that state was at the second lowest rate in seven years DataQuick reported today. The San Diego-based company attributed the increase more to a depressed rate of activity in the first quarter than to any real increase in the second. A cluster of new foreclosure laws, the "Homeowner Bill of Rights" took effect in the state on January 1 and DataQuick speculated that the industry took a while to adjust to its requirements.

Lenders filed 25,747 Notices of Default (NODs), the first step in a California foreclosure, during the second quarter, a 38.7 percent increase from the first quarter. The NOD filings however represented a 52 percent decline from the 54,615 that were filed in the second quarter of 2012.

The 18,568 filings in the first quarter were the lowest since the fourth-quarter of 2005 and, setting aside the first quarter an an anomaly, the second quarter was the lowest since the second quarter of 2006 when 20,909 NODs were filed. NOD filings peaked in the first quarter of 2009 at 135,431. DataQuick said that, beyond the effect of policy and regulatory changes, the low level of foreclosure starts thus far in 2013 reflect less distress in the housing market pipeline and a steep increase in housing prices.

"At this point in the cycle, it's fairly straightforward to see what's going on. Just do the math - it's not calculus, it's 4th grade arithmetic. A foreclosure only makes sense when the home is worth less than what is owed on it. As home values rise, fewer homeowners owe more on their homes than the homes are worth," said John Walsh, DataQuick president.

The median price of a home sold in California during the second quarter was $344,000, up 14.7 percent from the first quarter and 27.4 percent from the second quarter of 2012. The median price in the state peaked in second-quarter 2007 at $485,500 and hit bottom at $235,000 in second-quarter 2009, DataQuick reported.

Foreclosure activity continued to correlate with home prices. In Zip Code areas where median sales prices were below $200,000 there were (collectively) 4.2 NODs filed for every 1,000 homes. The ratio was 2.8 NODs per 1,000 homes for Zip Codes with $200,000-to-$800,000 medians, and 1.1 per 1,000 homes for the group of Zips with medians above $800,000. The same pattern was evident for completed foreclosures.

Most of the loans going into default are from the 2005-2007 period and the median origination quarter for defaulted loans was, as in the previous four years, the third-quarter of 2006. Wells Fargo was the beneficiary of the most filings(3,969) followed by JP Morgan Chase (3,801) and Nationstar (2,565).

Trustees Deeds recorded (TDs), or the finalized loss of a home to the formal foreclosure process, totaled 9,840 last quarter, down 27.6 percent from 13,592 in the prior quarter and 55.0 percent from 21,851 one year earlier. The second quarter marked the first time there were fewer than 10,000 foreclosures in a quarter since 2006. Foreclosures peaked at 79,511 in third-quarter 2008.

The average foreclosure took 9.1 months from NOD to Trustee Sales, up from 8.1 months in Q1 and 7.7 months a year earlier. DataQuick estimates that 54.2 percent of foreclosed properties were bought by investors or others that don't appear to be lender or government entities, a substantial increase from 47.4 percent in Q1 and 39.2 percent a year earlier. Foreclosure resales accounted for 11.6 percent of all home sales activity, down from 27.8 percent a year earlier and short sales were down 24.0 percent over the same period.