Money Does Matter

Appreciating how the rate of California foreclosures affect the economy in California as well as the country as a whole is important in trying to sort out the current recession and what caused it. After all, the things that go on in California eventually begin to spill over to the rest of the nation, and this is especially so when looking at the vast California real estate market.

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.

It would seem that real estate values had been declining for well over three years prior to the final 2008 descent from which home values in California and elsewhere are only now just finally starting to recover from. Make no mistake, though; this “recovery” is very minor, very fragile and very much in danger of collapsing at the slightest panic in the markets and especially in California.

It might, therefore, be said that CA foreclosures should have continued to serve as warning signs because six of the top 10 cities in terms of the rates of foreclosure are sitting in California. Arizona, Florida and California, in fact, make up 44% of all foreclosures across the country nowadays. These should have been clarion calls that shouldn’t have been disregarded, economists now say.

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 this is so is because investors in the broader markets as well as the housing market are very jumpy at present and aren’t entirely sure that the country has reached bottom, at least in terms of home prices. They are reluctant to jump back into housing markets without at least an even chance of making back what they’ve put into it over the long run. This tends to depress markets, truth be told.

It can then be said, with a great deal of certainty, that what goes on with the rate of CA foreclosures affects not only California’s economy but the nationwide economy to some extent. When foreclosure rates out in the Golden State finally begin to decline appreciably and steadily it might be that investors across the country will feel better about getting back into the markets in a big way.

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