Property appreciation rates in California have long been anemic to the national and other regional markets. Residents have enjoyed the meteoric rise in the value of their equity with little to no property improvements required. However, lenders sent 18,668 default notices to California homeowners during the January-to-March period. That was up 23.4 percent from the prior quarter and up 28.7 percent from 2005's first quarter, according to DataQuick Information Systems. Clearly, the landscape is changing. Home sales and price increases have recently slowed. Home inventories are growing and builders are lowering their projections. Several large employers have closed shop and sent jobs elsewhere. Interest rates have risen sharply in the last two years and rising credit standards are causing money to become tighter. Consumer debt has outpaced growth in personal income. Creative mortgage programs with 1% teaser rates signed a couple of years ago now see 55% increases in monthly payments that drive many over the brink of financial disaster. It is highly likely that the default rates in California will continue to rise dramatically in the next 18 months as these and other factors come into play. A small percentage of residents have seen the writing on the wall and have taken corrective actions such as locking in rates or selling the homes they can no longer afford. However, many remain in denial that the magic of seemingly never ending value appreciations in the state will enable them to live off their home equity forever. Undoubtedly, some will reach a point where there is no equity remaining to either refinance to the next greatest mortgage product or to extract more cash on which to live. Real estate is cyclical everywhere and the fallout in California will be something that only time will tell. |
