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California Foreclosures Go Off the Charts

Written By Brian Hicks

Posted January 23, 2008


Helicopter Ben may have earned his wings yesterday, but nonetheless the underlying conditions that lead to the near panic remain.

That’s why yesterday’s action by the Fed proving that he “gets it” has fallen largely on deaf ears so far.

Nowhere is that more apparent than in California, where recent foreclosure statistics have gone absolutely off the charts.

That’s because according to the data from the Golden State 31,676 homes went into foreclosure in the last three months of 2007. Unbelievably, that an astounding 352 a day, which begs the question of whether or not there are enough deputies in the entire state to serve them all.

And assuming that the losses on those homes will easily approach an average loss of 80K each, that means that the banks that are on the hook for all of those bad loans will lose some $2.5 billion in only three months.

Of course, if it only ended there it could probably be dealt with. But the sad fact is with home prices now beginning to fall dramatically in so many areas of the country its only the beginning.

Because as we’ve said so many times before it’s the prices, stupid….not the rates. That’s because its falling equity that really drives foreclosures not necessarily the ability to pay.

That’s the 800 lb Gorilla that the Fed can do nothing about. So while lower rates certainly won’t hurt, they are not necessarily the cure.

Home prices by the way will continue to fall. Need proof?

Let’s see what Merrill Lynch says.

From MarketWatch by Chris Oliver entitled: Merrill Lynch say U.S. nationwide home prices may fall by 30%

“Merrill Lynch forecasts nationwide U.S. home prices could decline 25% to 30% over the next three years, as new supply and weak demand weigh on the market.

“This sounds dire… but would only reverse part of the unprecedented 130% price surge from 2000 to 2006,” wrote economist David Rosenberg in a research note released Wednesday.

Rosenberg added the S&P 500 may decline an additional 20% to 25% to breach the 1,100-point level if the market follows historical precedents at times when the U.S. economy is in recession.”

By the way, you can read Merrill’s full report here.

But I wouldn’t do it too close to bedtime.

Looks like the Bear is in the house and the Fed is running out of bullets.