Understanding How California Foreclosures Affect Most Real Estate Markets

Understanding how California foreclosures can affect the broader economy, not only in California but also across the nation, is important in these economically-trying times, if only to better understand how the nation has ended up in a steep recession of late. It’s an old axiom that what happens in California eventually happens in the rest of the country, and when it comes to real estate it’s very true.

The seeds of the current recession seem to have been planted in two places; California and Wall Street. Whether one could have happened without the other is a discussion for other far more highly trained people such as economists and the like. What’s obvious, though, is that California was at least the fabled canary in a coal mine that nobody paid attention to when it finally fell to the ground.

For least a few years before the markets took their dive, California had been experiencing issues with its housing markets. Many investors, though, chose to ignore the issues with California, as well as Florida and Arizona, which both began experiencing similar issues, though almost all such warning signs were ignored due to irrational exuberance in the real estate markets, it looks like.

In California, it looks like declines in real estate prices had been steadily building in the three years prior to the late 2008 dive which took California home values down to their low point and in which values are only now finally starting to recover from, however slightly. This recovery, though, is very small and susceptible to collapse at the slightest gust of the wind out in the Golden State, it needs to be said.

CA foreclosures, then, might be looked at as another sort of warning sign because there are at least six California cities in the top 10 cities across the country in terms of their own rates of foreclosure. In fact, three states — Arizona, Florida and California — are contributing 44% of the total number of foreclosures in the country as of late.

Put everything together in terms of what was going out in California (which had been dealing with building issues for a decade or more when it comes to its property inventory) along with the possible effects of Proposition 13 — which may have intensified the problem — and one begins to understand how CA foreclosures can affect the broader economy. At the least, the rate scares investment off.

The reason why much of this is so and why many investors are so jumpy is that they aren’t exactly positive that the economy and housing markets have completely bottomed out in many parts of the country. Therefore, they are a bit hesitant to get back into these markets without at least a chance of getting out what they plan on putting into the market over the short and long run. Markets stay depressed when this is the case, for a fact.

Because of all this, it’s fairly certain that California foreclosures affect California economic activity. Not only that, but they tend to also spill over into the broader economy to at least a small extent. When rates in California begin, at last, to decline and then stabilize it might be that investment around the country will finally increase as people jump back into the housing market in a significant manner.

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