Taking The Measure Of California Foreclosures And What Might Happen To California
Posted September 3, 2010 – 6:15 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.
The recession, though, begin to put a stop to that sort of speculative activity and it did it first out in California several years before it broke out into the wider nationwide real estate markets. Many who bought into properties with low teaser-type mortgages ended up staring at steep monthly payments that had been readjusted after a certain period of time.
Equally as unfortunate is the fact that many people began to look at homes as investment instruments rather than places they would live in for quite some time. They bought into properties that usually were increasing greatly in price within just a year so they bought much more of it than they really couldn’t afford, expecting they’d be able to get into and out of the market with a nice profit.
Naturally, like any boom-and-bust cycle (and real estate is no more immune to it than any other aspect of the broader economy) the bust eventually occurred. Add in the fact that cultural biases against going into foreclosure seem to be melting away, and it’s easy to see how the rate of CA foreclosures soon begin to take off with a vengeance that frightened some economists.
There are also structural issues with the way California housing markets are set up and also with how the state is unable to adequately bank money for a rainy day when it comes to stabilizing its markets, some of which is due to Proposition 13, the anti-property tax law. Without adequate mechanisms, it was inevitable that the rate of CA foreclosures would go up, and it most certainly did.
Looking back, it’s easy to see why what happened did indeed happen. The trick for the state has now to get the right kind of mortgage assistance and legislation true that will help people stay in their homes more easily and avoid going to foreclosure right off the bat. Unfortunately, many are looking at that route as the way to go instead of trying to stay within homes that are worth less than they owe on them.
It would seem that the rate of CA foreclosures is almost a natural side effect of the speculative real estate activity that had been occurring for at least a decade out in California. Unfortunately, the state has only a few tools it can use at present due to its own budgetary issues brought on at least in part by Proposition 13. Hopefully, though, it’ll be able to do something more comprehensive in the near future.
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