Explaining Southern California's economy

Home foreclosures in California among highest in US

Foreclosure

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For sale signs are posted on a foreclosed house in Glendale, California.Foreclosures are declining in California, but the state is still one of he hardest hit.

California is still in the top five states nationally for home foreclosure rate, with one in every 379 houses filing, according to real-estate data firm RealtyTrac. But foreclosure activity fell in the U.S. in October and in the Golden State. That sounds good. But maybe it isn't.

Less foreclosure activity in California! How can that possibly be a bad thing?

Well, it does show that the housing market is showing some signs of a true recovery. But in Southern California, we’re currently dealing with a price bubble in some markets, particularly with houses that are selling for over $300,000.

A lack of housing supply is pushing prices higher, with the escalation spurred on by historically low interest rates and investors looking to snap up properties in the area on the cheap. Investors are often all-cash buyers, which makes it difficult for run-of-the-mill homeowners to compete with them. A suitcase of money usually trumps a mortgage, especially if a bidding war gets started on a property.

Declining foreclosure activity is actually contributing to the bubble.

Banks don’t want to put too many foreclosures on the market at the same time for fear of deflating prices and driving down mortgage loan levels. So although we should not lament the end of the foreclosure crisis, in Southern California, more foreclosures in the market would help it return to normal.

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