A  FOR SALE  SIGN is visible in front of a house on Lincoln Avenue in Oakland.
A FOR SALE SIGN is visible in front of a house on Lincoln Avenue in Oakland. (D. ROSS CAMERON Staff)
THE COOLING housing market is taking its toll, with the number of Bay Area homeowners entering foreclosure at the highest level in a decade and San Joaquin County setting a record, according to DataQuick Information Systems.

Meanwhile, a separate report, also issued Wednesday, predicts that the region's home values are among the nation's most likeliest to decline.

The likelihood of home prices dropping over the next two years is 61 percent in San Joaquin County, 60 percent in the East Bay and 59 percent in the San Francisco metro area, which includes San Mateo County, according to a report from PMI Mortgage Insurance Co. By comparison, the average chance of home prices declining in the nation's largest metro areas is 34 percent.

"Years of rapid appreciation have made homes less affordable in many areas, and that's not sustainable over the long term, so what we are seeing is not unexpected," Mark F. Milner, chief risk officer of Walnut Creek-based PMI, said of the report's findings, which are based on third-quarter 2006 home price data.

Call it a double whammy in the once high-flying real estate world. The pricey Bay Area housing market has been cooling as sales have declined, inventory has increased and interest rates have crept up. The cycle is hitting a tougher spot now with flattening home prices and rising foreclosure rates.

On the foreclosure side, lenders sent out 37,273 default notices in California from October to Decemberfrom Business 1

2006, up 145.


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3 percent from the 15,196 notices sent out in the fourth quarter of 2005 and the highest level since 1998, according to a report from DataQuick Information Systems. Default notices are sent out by lenders after several missed mortgage payments and are the first step in the foreclosure process.

While most homeowners are able to avoid foreclosure by getting current with their payments, refinancing or selling their home to pay off their loan, that is becoming harder as the market has cooled, according to the DataQuick report. About 32 percent of homeowners who got default notices earlier in 2006 ended up losing their homes to foreclosure the fourth quarter compared with 8 percent a year ago.

In the Bay Area, default notices more than doubled to 5,362 in the fourth quarter, from 2,292 a year earlier.

It was even worse in San Joaquin County, where default notices hit a record high. Some 1,293 homeowners received default notices, compared with 464 a year earlier. DataQuick statistics go back to January 1992.

San Joaquin County's increase in foreclosure notices is partly linked to speculators who are finding it difficult to sell homes in today's slowing market, said Renee Becker, a broker and vice president at Stockton-based Beck Realtors Inc.

"The market has turned, so maybe (speculators) have not been able to sell the homes," she said. "They are stuck with them."

Another factor is that borrowers who took out adjustable loans that started with low introductory terms are now seeing them reset to higher rates, she said.

Although default notices are increasing, most homeowners in San Joaquin County are managing to get current with their payments, Becker said.

"The lenders are working with the borrower and are offering them some assistance," she said.

Loans resetting to higher rates are likely playing a small role in the higher numbers of default notices, but "the main culprit here, by far, is the flattening out of home price appreciation across the state, and even some modest decline in home values in a few markets such as the Sacramento area," DataQuick analyst Andrew LePage said in an e-mail.

Mortgages taken out between January 2005 and February 2006 made up the majority of defaulted loans. DataQuick is not able to determine from the public records it collects when rates reset for adjustable-rate mortgages.

"When appreciation dries up, and certainly if depreciation sets in, it becomes very difficult if not impossible to refinance or take out a second loan, or convince family or friends to help you out," LePage said. "It takes longer to sell the house and it could be impossible to sell for enough to pay off the lender and cover any fees. We think this is why we're finally seeing foreclosures rise to more normal levels."

Contact Eve Mitchell at (510) 208-6474 or emitchell@angnewspapers.com.