Foreclosed properties put back on the market for sale are dragging down property values in Southern California, according to a recent study.
Property values in Southern California have declined about 15% to 17%, according to Dataquick, a national real estate research company in La Jolla, Calif. Foreclosed properties recently put back on the market are contributing to the decline in home values.
The problem is prevalent in newer affordable-housing neighborhoods, where homes are often purchased with FHA or Veterans Administration loans, which have down payments as low as 3% or 5%.
When property values decline, as they have in Southern California, the homeowner loses equity faster than if the down payment was 20%, said John Karevoll, financial editor at Dataquick. This can contribute to high foreclosure rates when the mortgage is for more than the value of the home, because the homeowner cannot profitably sell.
Foreclosures were relatively flat for the second quarter of 1995 after reaching a peak two years ago. Mr. Karevoll said he expects the number to stay at this low level through the end of the year. But the drag on prices will remain steady through the beginning of next year, he said.
In Southern California, home prices were 6% lower in June than in the same month last year. Farther north in the San Francisco Bay area, home prices dropped only 2.5% in June from the same time the previous year.