I have been reading allot lately about the current housing market in the OC (Orange County, CA) . If you are from Southern California or just California in general then you know that the housing market was overly inflated here since 2000-2001, in fact the markets in the U.S. with the worst losses also happen to be the markets that experts predict still have the furthest to fall. Those markets Nevada, Florida and California were the markets with the most rampant speculation by real estate investors and the new crisis coming to light “Heloc Abuse“. It is not reported in the main stream media but many people out there on the blogosphere are starting to write about it. Also I came across this article in USAToday where it mentioned that the Government is sitting on thousands of REO properties.
Since 2007, the Department of Housing and Urban Development has acquired at least 110,000 foreclosed houses, its records show, spending about $12.2 billion to reimburse lenders after the owners defaulted on government-backed loans. So far, HUD has been able to recover only about $5.5 billion by reselling them. It has about 38,000 homes still for sale.
A vast majority of these homes are in the Detroit metropolitan area and we all know what the economy is like there. On average homes in the U.S. have a year to year appreaciation of 3-5%, on the chart found here you can look at the median home price apprecceation in CA from 1997 to 2004.
| 1997 | $186,490 | 5.2% |
| 1998 | $200,100 | 7.3% |
| 1999 | $217,510 | 8.7% |
| 2000 | $241,350 | 11.0% |
| 2001 | $262,350 | 8.7% |
| 2002 | $316,130 | 20.5% |
| 2003 | $371,520 | 17.5% |
| 2004 | $450,990 | 21.4% |
This to me suggest that we have a long way to go to correct the prices back to where they should normaly be. So what does this all mean? Well in my opinion we have several bubbles yet to burst:
- Massive speculation by real estate investors who unless they are cash rich will simply walk away from ever increasing losses on there investments.
- Rampant heloc Abuse by people who used there homes as atm/credit cards and now find their deep well of wealth drying up.
- The government (as well as banks) holding on to an enormous backlog of REO properties that if put on the market would lower housing prices even quicker.
So the housing bubble has burst but there are many little bubbles waiting to pop too!