California is at the end of its 10-12 year recurring cycle of running up real estate values, and is now due for a correction. However this time, there are factors in play that will act like an accelerant on the decline in California real estate values like nobody’s ever seen before.

In a nutshell, here’s Why:

Real estate values have been artificially “pumped” up by the presence of interest rates that are at 50+ year lows.

Despite these very low interest rates, records are being set for the number of bankruptcies filed for almost every year of the last three years. See related article at http://www.abiworld.org/Template.cf…tentDisplay.cfm

Increasing foreclosures and REO’s are appearing in the same states (Texas, Arizona, Colorado, etc.) that immediately preceded our crash the last time. Foreclosures are up 400% (over 2000) in Dallas Texas per the article here… http://www.zwire.com/site/news.cfm?…id=528197&rfi=6

California has a disproportionately high number of 1031 tax deferred exchanges. Consequently, and in order to avoid paying taxes, tens of thousands of real estate investors have allowed themselves to be suckered into buying (i.e., increasingly leveraging into) larger properties that are significantly overvalued.

California still has an ENORMOUS and UNRESOLVED budget crisis

California still has an ENORMOUS and UNRESOLVED energy crisis

If you think records were set for fixed rate mortgage refinancing, you’re right. But what you may not know is that the number of homeowners who’ve taken out Home Equity Lines of Credit (HELOC’s) on their homes (ever notice how many people “more” people are driving expensive cars these days despite the cost of gasoline) is far more than the number of people who have locked in low fixed rate mortgages. Keep in mind, ALL HELOC’s (and credit card debt) are adjustable! When interest rates rise, these homeowners will get blown out of their homes, and when that happens, their low fixed rate mortgage will disappear (remember, fixed rate loans are not assumable!) and lenders will be happy to lend it out again at a much higher rate. Maybe now you can see why lenders are so happy to give you a HELOC that far easier to qualify for than a regular home loan. And I’ll bet you didn’t know that in 2001 alone the Prime rate dropped ELEVEN times that year. Imagine what will happen if the Prime Rate increases ELEVEN times in any one year!

The disparity between what it costs to own versus rent the same property has become nonsensical economically. I’ve heard from too many Californians about the so-called “sunshine tax”, the excess amount people are willing to pay to live in California, and how it will always be that way. Well guess what, they’re wrong. The only people coming into California are those coming from the south looking for a hand out. Anybody with enough money to rent a truck and leave California is doing exactly it and here’s the PROOF!

If you go to Uhaul.com (as of mid-April 2004) and get a one-way quote from Las Vegas, Nevada to San Diego, California for their largest truck, it costs $200, but if you get a quote “leaving” San Diego for Las Vegas, the amount is well over $1,500!, a more than 700% increase! That’s because so many of their trucks are leaving the state compared to coming in, that they have to price them for what they have to pay people to retrieve them and bring them back. I checked other cities that I’ve heard Californians are moving to and the rates all reflect the obvious, that the net migration pattern for San Diego (and likely other parts of California) is that tons of people are leaving! With more people (with assets) leaving the state, and more illegals arriving, in an increasing interest rate environment, economically, it’s going to get very ugly for California!

Want to verify what I’m saying, get a quote from Uhaul.com at the link below:
http://reservations.uhaul.com/(5roksl45lnxsxdu31gpfqa55)/moveinfo.aspx?move=oneway