The current real estate market in the U.S . is similar in most areas throughout the country. After several years of unprecedented home price and sales increases most parts of the country, including San Diego, are now feeling the effects of a correcting market. As interest rates climb, mortgages are becoming unaffordable, which will eventually result in a home foreclosure.

The article, “Foreclosure rates, default notices soar” posted in the October 14, 2006 edition of The San Diego Union-Tribune and written by Roger M. Showley explains how San Diego’s low rate of affordability is leading to more foreclosures.

“San Diego County is experiencing mortgage foreclosure rates not seen for the past eight years, two monitoring companies reported yesterday. Locally based DataQuick Information Systems said foreclosures totaled 171 last month, more than 10 times what they were a year ago and the highest since 1998.”

Related to actual foreclosures is the number of default notices (the first step in originating a foreclosure), which was 872 compared to only 334 filed a year ago in September 2005.

There are different views as to why the numbers of foreclosure are drastically higher than last year.

“The people who get into trouble are not able to use their homes to get out of trouble the way they were able to do when there was strong appreciation,” DataQuick analyst John Karevoll said.

Karevoll was referring to the ability of home owners to refinance their homes and negotiate lower monthly payments because of rising values and falling interest rates from 1997 to 2004

But median single-family home prices have been appreciating at a much slower pace over the last two years and actually declined last month from its year-over-year mark, reported DataQuick.

“RealtyTrac said California posted the biggest increase in foreclosure activity of any state last month and nearly three times the number reported a year ago. The total – including all levels of foreclosure short of the actual sale – was 14,806, 13.2 percent of the total nationwide of 112,210.”

However, this statistic is skewed due to California’s large population. According to Michael C. Fratantoni, senior economist at the Mortgage Bankers Association, as of June 30, the percentage of foreclosed mortgages was 0.27 percent in California, compared with 0.99 percent nationally.

So there really seems to be no need for panic. Fratantoni continued to explain that foreclosure rates during the mid-‘90s were close to 2.0 percent, which is almost 10 times higher than today.

“In San Diego last month, for example, only 62 properties were classified as “REO” or real estate owned by banks. Still, that was six times the 10 REOs counted in September 2005, according to RealtyTrac.”

As foreclosures rise in San Diego, so will the concern of its real estate market. Prices inflated so quickly and really took the market by storm. Many people who bought out of fear of prices escalating even further the last couple years, are the most obvious candidates for a foreclosure. Chances are many of these people did not have the necessary finances to begin with and are now defaulting on monthly mortgage payments due to higher rates.