Similar to many of the states throughout the US foreclosures in California have steadily increased until they are now considered to be at crisis levels. Although some banks have put in place plans to impose moratoriums on foreclosures by modifying loans for home owners who might be in danger of falling into foreclosure, other home owners who do not have mortgages with these banks are still going to be in hot water, as not everyone fits under the same plan.
In California home equity dips have affected between 29 and 34.5% of home owners. This means that these home owners have minimal if no and even negative equity in their property. Negative equity is one of the major stimulants for foreclosures to occur. Anyone facing any kind of economic crisis and with negative equity in their mortgage will have far less of an option if they need financial assistance to help them through the crisis. This leads to them being unable to meet their mortgage payments, they fall into default and eventually foreclosure is inevitable.
Foreclosures in California include hot spots such as Sacramento, however only 17% of home owners who purchased property in 2008 are in a position of negative equity, while 68% of home owners who purchased property in 2006 are in positions of negative equity. The rates of negative equity are not evaporating as quickly as in hot spots such as Bakersfield where homeowners who purchase property this year were in a state of negative equity to the tune of 31%. This means that 31% of the people who purchased homes in Bakersfield this year could face foreclosure action in the forthcoming months if they do not do something now about their negative equity position.
The composition of the property market has changed quite substantially. As there are so many foreclosures on the market at discounted prices, investors and new home buyers alike are taking advantage of this market. In order to stem continual losses some home owners are prepared to sell their property at greatly discounted prices. This stops the foreclosure process and allows the home owner to at least save their credit record. Effectively three quarters of the houses owned nationwide have dropped in value and some to the tune of as much as 40%.
In some instances, foreclosures in California have the low down payment to thank for the situation. For instance in Visalia the median down payment rate is 5%, while in El Centro it is as low as 1.6%. This means that at the outset the homeowner has no equity in the home, and with the value of property dropping, this makes the loom of a pending foreclosure in a crisis situation even more realistic.
It is not all bad news though; foreclosures in California have created a situation where new buyers are able to enter the market and purchase houses that they might not normally have been able to afford.
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