In line with a valleywide trend, foreclosure rates in Merced County continue to drop.
Last year, 1,039 homes were lost to foreclosure, the lowest total since 2007, according to statistics from DataQuick.
Since 2008, the latest figures show, more than 13,500 homes in Merced County have been repossessed because property owners defaulted on their mortgages.
However, in the second half of last year, just 476 homes were lost to foreclosure. That's pretty rosy when compared with the same period in 2008, when 2,579 homes were reclaimed by lenders.
Rising home values coupled with some government regulation have helped keep people in their homes, said Phillip May, a real estate agent who specializes in foreclosures with London Properties.
"Things are definitely getting better," he said. "Prices are going up and fewer people are underwater. More people can refinance if they need to."
Other indicators suggest more good news. Fewer people are entering the foreclosure process, which can take as long as nine months.
In the last quarter of 2012, mortgage default notices were issued to 332 Merced homes, a roughly 30 percent decrease over the same period the previous year, according to DataQuick.
Part of what is going on is that as home values increase, people are less inclined to walk away from a property, May said.
"If prices are going up, people who in the past would have let their homes go are more inclined to not do that," he said. "As prices stay up or increase, I think you'll see less of that problem."
Part of what is driving the bump in home prices may be a shortage in supply, according to area people in the industry.
"Fewer houses are coming on the market because people are getting modifications," said Andy Krotik, manager of Coldwell Banker Gonella Realty in Atwater. "They're not doing short sales. They're not walking away from their homes."
There are only about 100 homes for sale in the city of Merced, May said.
"Our supply is really tight, and what's happening is you're seeing more people willing to pay more over appraisal because if they don't, they're not going to get it," he said.
Although prices seem to be hovering just under the cost of construction, it may be only a matter of time before the building market becomes profitable again.
"With the inventory so low and the prices going up, this is opening the door for new home construction, which will be happening by summer, definitely," Krotik said.
How many more foreclosures banks will dump on the market is a question that continues to be debated.
"I don't think they're holding on," Krotik said. "I think they're doing modifications. There's more (foreclosures) coming, but it's not going to be the tidal wave that people have been talking about for two years."
That's been the big question, said May. "Is there a shadow inventory? I've always maintained there is. But where is it? As prices go up, fewer and fewer of these homes are underwater. A lot of this inventory may be disappearing."
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