California Foreclosures: What is Causing Them?
When you look around the country at the mortgage industry one of the things that stands out the most is the California foreclosures. Lately there has been a huge upswing in the amount of California foreclosures being reported and this article is going to take a look at some of the causes of this.
California Foreclosures: The Simple Truth
The problem is that most of the loans that have been issued for homes in California are simply not able to be paid by the people living there. Factor in adjustable rate mortgages whose rates increase over time and you have a recipe for disaster.
With the average home price in Southern California exceeding a quarter million dollars there is no way that working class citizens can keep up with their payments. If you do the math you can easily see why California foreclosures are on the rise.
Is it their fault that they can not afford to live in the area they work? Absolutely not. Banks have lost sight of being responsible and by doing so have allowed the prices in this region to be thrown completely out of whack for the homes actual value. What this means in simple terms is that the homes across California have become overvalued and the people living in them can not afford them.
Most of these people are not living in humongous mansions, but rather small single story homes that they were forced to buy at inflated and overvalued prices. It is impossible for them to keep up on their payments with a working person's salary, so they are left with no other choice.
The other effect of California foreclosures is that as each house goes into foreclosure it devalues the homes around, spiraling the market farther down. Eventually it will have to hit bottom and stabilize but that could be some time away as banks try to make adjustments to lending policies and current loans to help keep their customers for foreclosing on the homes.
The current increase in California foreclosures is alarming but was easily predictable if you looked at the market from an objective perspective. There were many factors that came into play but the most important one is the fact that banks did not loan out their money responsibly and allowed the prices in the market to spiral out of hand in an attempt to increase profits and margins. Hopefully they have learned from this and the market will stabilize and settle down.
