California Housing Issues

In early October of last year the Controller of the State of California released data showing that California fell more than $700 million short in initial budget plans for the year.  A slight miscalculation, an overly buoyant disposition, or perhaps just sheer ignorance; whatever the reason it is easy to see why, given the such a disjointed mindset, we took the housing bubble to a completely different level. That being said, another housing rally downward is not completely out of the realm of possibility here.

California continues to have an outrageous amount of distressed properties, with numbers for NOD’s filed in the third quarter of last year the highest they have been since Q3 of 2010. Much of this is due to the banks moving forward on foreclosure activity, while also stemming from the banks moving forward on their accumulation of a shadow inventory. Short sale figures have steadily been growing over the last year. Foreclosure re-sales, at 33.8 percent in September 2011, have actually fallen for the second quarter in a row. Even still, the increase in NOD’s previously noted assures that we will have more distressed sales to come, most likely sometime in spring of 2012. Additionally, the foreclosure process can take up at least to six additional months to sell a property. Once the NOD count starts getting into the 20,000 filings per quarter range, it is likely the market will start to level out.

According to the Federal Housing Finance Agency, we have no sign of home prices going up, and despite the false perceptions otherwise, most homeowners still have a mortgage attached to their home. And yet, reluctant sellers still expect peak prices for their sale even though the bubble has passed. Further indicated by the fact that the typical mortgage payment (helped along by artificially low rates) for the end of the year in the state was around $964, people can only afford so much home. In truth, a large part of cash sales are going to investors seeking out cash flow or investment properties. So let’s face it California–a 12 percent stated unemployment rate, real unemployment rate above 20 percent, a $700 million budget shortfall with likely tax hikes to follow–things are not at all looking good for home values.