New Blog 2: California House Prices

Monday, 12 November 2012

California House Prices

Negative equity is a polite way of saying someone over paid for a home. The technical term takes away the actual visceral reality of being underwater on a mortgage. Empirical research has come out of this nationwide housing crash and the number one predictor of foreclosure is negative equity. Now this is obvious on the surface but it is good to have actual data validating this reality. Being underwater puts many Americans in a negative net worth situation. Most Americans do not participate in any significant way in the stock market. The vast majority derive a large amount of their net worth from the equity in their homes. So the current nationwide housing crash has wiped out over $6 trillion in real estate wealth from the peak. Was this even wealth to begin with? Of course not but psychologically people were spending as if equity gains of 15, 20, and even 25 percent per year were a new paradigm. With the ability to leverage housing purchases for an entire decade we are now dealing with the unfortunate repercussions. As one would expect, home prices are now at a post-bubble pop lows.