Foreclosure Ridden California’s Economy Getting Worse

Posted on November 10, 2008
Filed Under Foreclosure Homes |

The foreclosure-ridden economy of California is going from bad to worse. It is apprehended that the unemployment rate will go above 7% all through the coming year as the foreclosure juggernaut rolls on and individual incomes either shrink or vanish as per the findings of UCLA Anderson Forecast. The report states that a “ strong undercurrent of housing and finance generated weakness” is responsible for the pulling down of growth in California. It will be worth noting that California is the eighth largest economy globally. The report categorically stated, “Our near term quarterly forecast has things getting worse. Unemployment will continue to increase to the thin air of 7.4% by the end of the year and it will stay in that neighborhood for each quarter in 2009.”

The economies of Los Angeles and the Bay regions are diversified and can hold their own had it not been for the damning effect of the foreclosure crisis. It is pulling down the economy not only here but also in many other parts of the state as well as the nation.

Things had been hunky dory during the previous few years when the housing boom had been zooming to dizzy heights. The prices of houses had rocketed skywards in this Golden State. This encouraged many to take risky sub-prime mortgage loans. These are largely held responsible for the foreclosure crisis of today. This has resulted in the tumbling down of real estate prices from those high peaks and putting a break on all construction related activity. It has had a snow balling effect on the entire economy. California has one of the highest numbers of foreclosures in America. The chances of recovery are slim because unemployment problems have joined hands with foreclosure woes. The two combined “have finally overwhelmed other sectors of the economy” reported UCLA Anderson Forecast. Employers have stopped hiring and in fact they are trimming jobs. In one word the employment picture of the state is “ugly”.

Buyers of houses will be waiting for further fall before they enter the market again. Once this happens the real estate will stabilize itself and improve prospects for the general economy. But before that the market will have to correct itself from the excesses of the housing boom. The number of repo houses listed to be sold has to shrink and money has to be made available by the mortgage lenders before the situation returns to normal.