Bay Area home foreclosures rising after pandemic pause

Brace yourself: Home foreclosures are on the rise in the Bay Area after grinding to a halt for most of the pandemic.

But real estate experts say the recent spike signals more of a return to normal rather than a coming housing crash, though foreclosures are primed to continue trending upward in the months ahead.

During the first half of this year, foreclosure starts in the five-county region jumped 90% compared to the same period in 2021, according to new data from real estate analytics firm ATTOM. Still, the number of Bay Area foreclosure filings — one for every 1,419 housing units — remains below pre-pandemic levels.

“We would need to see an exponential increase before the Bay Area market would start to feel an impact,” said Rick Sharga, executive vice president of market intelligence at ATTOM, noting the region’s foreclosure rate is under the national average. “It’s unlikely we’ll see enough foreclosed homes entering the market to have much of an effect on pricing.”

Sharga said that’s thanks in large part to forbearance plans offered by the federal government and private lenders allowing struggling homeowners to pause their mortgage payments during the height of the coronavirus pandemic. Additionally, a $1 billion statewide mortgage relief program available to an estimated 13,000 Bay Area households has helped thousands of borrowers.

But since a foreclosure moratorium on federally backed mortgages expired in July 2021, and many banks around the same time restarted foreclosures on private loans, homeowners who became delinquent prior to the pandemic or haven’t been able to take full advantage of emergency programs have been increasingly losing their homes.

Pandemic programs are also winding down for renters. Final statewide eviction protections expired at the end of last month, though some Bay Area cities and counties have passed their own eviction moratoriums that remain in effect.

Despite the rise in foreclosure starts, the 1,707 filings in the core Bay Area so far his year still represent a 17% decrease from the same period in 2019, the year before the pandemic hit. That’s also less than half the 4,555 starts in the region during the first six months of 2016, when foreclosures were still falling from their Great Recession peak in the late 2000s.

Contra Costa County has had the highest foreclosure filing rate in the region this year at .12% of all housing units, or one in every 833. That’s followed by Alameda County at .08%, Santa Clara County at .06%, San Mateo County at .05%, and San Francisco County at .04%.

Sharga expects foreclosures to continue to increase and return to at least pre-pandemic levels in the Bay Area and across the country by the middle of 2023. But he warned persistent inflation and recent interest rate hikes could trigger an economic downturn hitting middle-income homeowners and causing foreclosures to “return to slightly higher-than-normal levels a little bit more quickly.”

Jason Estavillo, a foreclosure attorney in Oakland, said another factor could lead to a greater surge in foreclosures. In recent weeks, he’s been flooded with calls from homeowners worried their forbearance agreements are now ending.

“Banks are asking for a balloon payment up front of all arrears during the forbearance period,” Estavillo said.

The spike in foreclosure activity comes as the scorching pandemic Bay Area housing market is entering a cooling phase amid rising interest rates squeezing buyers and a growing supply of homes for sale. The median sales price of existing single-family houses in the region dipped 7% from May to June to $1.4 million, according to the California Association of Realtors.

Real estate experts agree foreclosures are having relatively little to do with the recent price softening. That’s in contrast to the 2008 housing crash and recession, when millions of homeowners across the country defaulted on risky, adjustable-rate mortgages and drowned the entire home market.

But John Heckenberg, a San Mateo-based real estate agent with Compass, said more foreclosure activity could have the effect of discouraging some house hunters as the broader economy appears more unstable.

“I think it plays into the psychological mindset of buyers,” Heckenberg said. “You do have a lot of outside factors playing into people’s decisions.”

For homeowners who’ve fallen behind on mortgage payments or received a notice of foreclosure, Heckenberg said the first step should be to reach out to their banks to see if they can come up with a hardship repayment plan. He added that with home prices still at historic highs, homeowners with enough equity in their properties might be able to sell and avoid foreclosure altogether.

“It’s about getting ahead of the curve,” Heckenberg said. “The longer you wait, the fewer options you have.”