Foreclosures Up In Southern California

Yes, indeed -- it does appear that the real estate bubble is deflating in many red hot markets. Southern California has been overheated for some time. But now, the incidence of foreclosure has jumped a whopping 29 percent overall just since January of this year, according to Default Research, a PA-based research company. San Diego county alone has seen an increase in foreclosures of almost 50 percent.

Just over three-quarters of the total number of foreclosures are single family homes. This means that the financial pressures of the real estate market are impacting families to a much higher extent than other homeowners.

However, just when you think the bubble is really acting like a bubble, I read that the median price for a home in "Silicon Valley" is now $800,000. How the heck are people able to afford that? My spouse is a programmer, and while she makes a good buck (when not on maternity leave), she certainly wouldn't consider herself in the market for an $800,000 home. Even if we put both our (reasonable) salaries together, we aren't in the market for an $800,000 home.

Turns out that some are getting into the market using "exotic" types of loans. The Consumer Federation of America indicates that some of us are turning to interest-only mortgages (where the principal amount of the loan is never paid. This is a very risky strategy that assumes the property is going to appreciate fast -- so I won't get in trouble. However, it is exactly this kind of loan that is likely to contribute to the housing market deflation through foreclosures. Where you don't build equity, you aren't benefiting from home ownership. You're basically renting, with the hope that you can sell at a higher price and get something for the time you rented.

We live in interesting times.

Michael

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