Assessing California Foreclosures And California’s Possible Futures
Posted October 9, 2010 – 5:52 am in: LoansA look at California foreclosures and the future future of California is easier looked at than assessed. This is especially when it comes to the Golden State of California, because the state has been so affected by the downward turn in the broader economy as well as in its real estate market. Answering it, therefore, requires looking at how the foreclosure rate went up in the first place.
Like a lot of other states and regions in the country, the rate of foreclosures out in California began climbing as many people began to suffer the effects of an incipient recession (which started earlier out in California) and found that they couldn’t afford the homes they were in. Some of this is due to their speculating that it be able to get out of the market before it dropped, which didn’t happen.
Unfortunately, the recession that has hit the entire nation first broke out in California a few years ago and caught many home owners out there unawares. Sadly, many of these homeowners were sitting on initially-low mortgages that were tied to interest rate adjustments that soon led to monthly payments going through the roof.
Equally as sadly, many of these people bought much more home than they really couldn’t afford, with the expectation that they’d be out of those homes before their original mortgages adjusted upwards. Most times, the gamble would pay off in they’d be gone and into an even bigger home but with a significant profit on the sale of the original home in their pockets.
But this is all part of a natural boom and bust economic cycle, not only in real estate but in most other aspects of the economy. The bust eventually occurred and it was a very sudden one at that. However, the difference this time is that more people are less hesitant to go the foreclosure route, which means that the rate of CA foreclosures is steeper than many economists assumed it would be.
The state of California, which already was restricted from taking advantage of much of that boom due to Proposition 13 — an initiative passed several decades ago which restricted the rate of taxes that could be excised on a property — was hurt badly by the decline in home values and the increase in foreclosures. And the state is still struggling with what to do about the CA foreclosures rate.
The first thing that the state probably should try to do is stabilize the foreclosure rate and prevent it from increasing any further, and the federal government has been helping in that regards with a number of innovative programs that might help. Getting the word out to many California property owners, though, has been tough as has been getting them to forestall or put off foreclosure as a first, rather than last, resort.
CA foreclosures and the rate at which they’ve increased is a natural consequence of a wildly exuberant economic cycle that eventually had to move into a bust period. Add in that California as a state is restricted in what it can do in terms of property taxes on homes and land in California and it’s easy to see that the state will really need to put together a comprehensive package to deal with the issue.
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