What do California foreclosures mean for the Golden State in the future? Of course, this is a question that’s easy to ask but difficult to answer when it comes to a state like California because it’s been affected so hard by the recession as well as the issues in its real estate markets. A look at the future requires looking at how these foreclosures began to climb in the first place.
Much like the rest of the country, foreclosures out in the Golden State began to occur as people who held property — either as an investment or who bought homes they maybe shouldn’t have — began to find that they couldn’t afford the payments on those properties any longer. Many people in California were speculating that they’d be able to get into and out of the market with a profit.
Soon enough, the effects of the recession put a stop to such speculation and it did so out in California well before the same phenomenon broke out around the rest of the country. Now, many who invested in homes with very low interest rate or low payment mortgages that would readjusted in the future are sitting on properties they can’t sell and that they now can’t afford.
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.
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.
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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