California Could Be The First State To Have Reached Foreclosure Peak

Posted in Foreclosure Homes, August 5th, 2008 |

In the housing recession California led the nation since the days of the Great Depression. But with reports now coming in from the real estate market, the state may be first to have reached the foreclosure peak.

In Stockton, one of the worst hit pocket of California, sale of houses are picking up. During the second quarter the sale numbers doubled after prices fell by 37%. Across California the sale figures increased for three running months starting from April. This has come after 30 running months of decline said the California Association of Realtors. Of the sale, 40% came from the foreclosure category.

Mark Zandi of Moody’s Economy commented that California had gone through a traumatic time as regards fall in wealth but this shock is laying the foundations of a recovery. He said, “This signals the beginning of the end.” California lost about $1.3 trillion in house equity since the price of houses reached its pinnacle in December 2005. Today discounts up to 50% are being given and will in all probability continue till 2010. Only a fast pace of sales can clear the glut and bring back stability to the market.

For the 18th running month California led the country in foreclosures. In June seven of its metros were including among the top 10 highest foreclosed metro regions. This pushed down prices and ‘distressed sales’ became the norm. Two thirds of the sale dealt with houses priced below $500,000. It would take 7.7 months to clear the accumulated stock. Previously a year ago it would have been cleared within 10.2 months. The average price fell by 38% last month, dropping to $368,250. Professor Karl Case of Wellesley College, Wellesley, is optimistic that “things are beginning to happen.” He opines that unless the stock piled up is cleared nothing will move.

California led the housing boom when prices doubled during 2000 to 2005. All time low interest rates made this possible. With prices rising, sub-prime mortgages made its debut with its ARM’s. Loans were given to anybody with a pulse without checking on their income and capability. But when the floating interests increased to higher niches the housing boom burst and foreclosures swooped down on the nation. Some loans did not need even down payments. About half of the 25 sub-prime lenders of USA are based in California. All these reasons combined to make California the reigning monarch of foreclosures.