Foreclosure market is shrinking in the downtown San Diego and throughout San Diego. If you are looking for that smoking deal from bank owned properties better be ready to get into a bidding contest because everyone is looking for those deals.

Foreclosures have been dragging down home values since the housing market crisis began in 2007. A steady decline in notices of default, which officially begins the foreclosure process, could indicate a market fumbling toward health.

Although default rates were still well above historical norms, May marked the 18th consecutive month in which the number of defaults was lower than it was 12 months earlier.

A typical foreclosure in San Diego and Riverside counties took 249 days as of March, ForeclosureRadar said.

Foreclosures are still well above a rate considered healthy by economists, which is usually about 0.25 foreclosures per 1,000 households.

Part of the improvement stems from a drop in the number of people who owe more on their homes than the property is worth, called being “underwater” or having negative equity.

By March, 28.5 percent of San Diego County borrowers were underwater, down 4.4 percentage points from December 2009, the first time CoreLogic published the data. In Riverside and San Bernardino counties, 47 percent of homeowners had negative equity, down 7.9 percentage points from December 2009.

Some owners were helped by a short-lived increase in buyers spurred last year by government tax incentives, which allowed some to sell their homes for less than the owners owed in loans, called a short sale. In April, 27 percent of San Diego County sales and 66 percent of sales in Riverside County were either foreclosure sales or short sales.

But while home values have fallen in recent months, which can signal more foreclosures this summer, analysts don’t think the crisis will skyrocket like it did in 2007 and 2008.

To receive a list of the foreclosures available in Downtown San Diego please contact me or come into the office to grab the new list of the day.