Maybe the whole state of California isn’t going into default, but it’s starting to feel like it: [Thanks L!]
About 1 in 10 Californians with a home loan is now in default, and there’s growing evidence that the mortgage meltdown is spreading to commercial real estate.
The home mortgage delinquency rate — the percentage of borrowers who have missed several payments and are in the first stage of foreclosure — climbed in June to 9.5% in California and 9.9% in Los Angeles County, according to First American CoreLogic.
The staggering number of home mortgage defaults probably will lead to large numbers of foreclosures through at least this year, housing experts say.
"It’s probably a given we’ll see a high number of foreclosures in the next couple of quarters due to the level of defaults plus the recession and jobs lost. There’s plenty more pain to come," said Andrew LePage, an analyst for real estate research firm MDA DataQuick of San Diego.
The rumblings continue in commercial real estate:
"There’s no question we’re going to see more commercial properties end up in restructuring; the question is how much," said Dan Fasulo, managing director of Real Capital Analytics, a New York research firm.
Fasulo said lenders are trying to avoid foreclosures on commercial properties partly because they don’t want to take on properties they would have trouble selling.
"They’re saying, ‘If we foreclose now, what are we going to do with it?’ This is the worst market to sell property in modern times."
Lenders have been making allowances to upside-down borrowers, hoping to keep from foreclosing long enough for commercial real estate values to recover, Fasulo said. There’s now a popular street term for the practice, he said: "extend and pretend."
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Whats funny is I can’t convince people around here that houses aren’t anywhere near the bottom.
“But the SF bay area has always been expensive, it can’t go down any more”
Really? Why not?
I wonder how much CA will go for on the foreclosure market. If I pay attention, maybe I can pick up my own city for cheap, name it after myself, and become a slum lord!
I myself am stunned at the denial of Californian’s with regards to housing. With real unemployment at close to 20%, all real companies run out of the state by the government, and a median household income of somewhere in the $60K, who is going to by all these expensive homes? When I look at houses here, I get the 2000 price, add 9 years of inflation, consider the additions/upgrades, and that is where the price should be. Most of the people who caused the bubble here are either out of the market via bad credit, didn’t/don’t have the income, or don’t have the down. Prop 13 needs to go away and the state needs recourse mortgages. Those two things alone would prevent any further stupid bubbles. How many potential customers do the realtors in this state think the actually have? Customer = Person who can actually buy and finance the property??
Linenoise-
I don’t know of any Arizona cities for sale, but it looks the state may need to sell off the buildings where the legislature meets. [No word on how much extra it would run to have the legislators thrown in.]
Redneck Thumper:
I have lived in SoCal for 10 years now and there are several things that I am still stunned about:
1. There are a chitload of rich people here. And I mean it. Really, really, stinking filthy rich. People who make 10M+ per year.
2. There are a chitload of poor people here. Many of them keep living here because we have great benefits for poor people. Unemployment, healthcare for poor, etc. Unequaled anywhere else.
3. The middle class is really very small. I would put it at <5%. Of course, “middle class” here means you make $120K+ to $300K. Noone in the middle class in Orange County can afford a reasonable middle-class home at current prices. They can buy one, but they won’t afford it.
4. The rich love Prop 13, and they’ve found ways to convince poor people it helps them too. I still can’t wrap my head around that one. Prop 13 is full of holes if you’re rich, but not if you can’t afford to incorporate.
5. The rich pay a lot of taxes [correction at user's request], but a much lower percentage of their overall income. For many, they have their residences elsewhere be their “full-time” residence. They just vacation here 300+ days per year.
6. 2000 prices were already bubbly in some areas due to the Tech Bubble. Housing values do not have to follow inflation when other competing expenses are rising much higher (taxes, insurance, healthcare, food, water, electricity, etc) Housing is just one of the competing places to spend your shrinking pool of money.
7. We are ground zero for the Option-Arms. ’nuff said.
Chuck:
Item 5 in your post hits the nail on the head. That is why California needs to embrace higher property tax percentages. But, of course, they won’t, because money still controls the legislature.
Commercial real estate is in trouble now and it will get worse before it gets better. There is little money out there that is not government backed. Commercial mortgages are seeing the same problems as residential jumbos are and maybe worse.
Ah so desu ka. “It is sorrowful when weeds flourish.”
Igor says: lame (joke) but I’m posting it anyway.