Could California Homes Be Practically Worthless???

In the past five years, Californian's took out mortgages far exceeding their ability to service the debt. Now residents are suffering massive wage cuts and job losses.....many simply can't afford to make their mortgage payments and foreclosures are exploding.

The problem is simply not just home buyers who purchased homes, but the thousands who borrowed against their existing homes to sustain a "California" lifestyle:

The latest argument comes from Michael LaCour-Little, a finance professor at Cal State Fullerton. He is lead author of a new study, which found that during the housing boom some long-time owners borrowed against all their property's equity gain, or paper profits. They treated their houses like cash machines.

People who owe their bank as much or more than their home is worth are most vulnerable to foreclosure. When they suffer a job loss or other drop in income, they can't sell, because the sale price won't cover the debt.

It's long been assumed that home buyers who purchased at housing's peak with little money down are among the most likely to face foreclosure. They owed more than their property was worth once prices tanked.

But the study concludes 'cashing-out' is about as predictive of foreclosure for the same reason: negative equity.


Think of the countless number of elderly, small business owners, and others that survived over the past few years simply from extracting millions of dollars from perceived home equity......and now that the supplemental income has evaporated.....few can sustain their lifestyle and the equity is gone.

Many families are in financial distress and that distress is driving DOWN home values. Pricing projections are constantly being revised lower. Most recently, Fitch is calling for an ADDITIONAL 30% decline in California.

The projected losses also reflect an assumption that from the first quarter of 2009, home prices will fall an additional 12.5% nationally and 36% in California, with home prices not exhibiting stability until the second half of 2010.

Fitch-takes-various-actions-on-543-2005-2008-us-subprime-rmbs-deals

With countless numbers unable to make their payments.....California is struggling with the torrent of foreclosures flooding its court system every month.....a court system already stretched due to budget constraints. Things have gotten so bad that lawmakers are suggesting a moratorium on foreclosures....

California is imposing a 90-day moratorium on housing foreclosures under a new law that takes effect Monday.

The law is expected to make lenders try harder to keep borrowers in their homes. Loan companies must prove they tried to modify the delinquent loans before they can begin foreclosing.

But supporters acknowledge the California Foreclosure Prevention Act won't stop thousands of foreclosures from eventually happening. There have been more than 365,000 foreclosures in California since early 2007, with many more already scheduled.


However, the moratorium will accomplish little other than delay a growing problem of affordability....evidenced by the most recent federal moratorium's failure to slow the rising the tide once lifted.

Foreclosures occur as a result of insufficient income and savings to service debt and other obligations. Without good jobs, savings or easy access to the home equity machine......many more in CA face eviction. In addition, the state faces the loss of billions in property tax revenues at a time when it's $24 Billion in the hole.

If wages continue to evaporate and jobs sliced like limbs on a sepsis patient....pretty soon there won't be much left to cut in California. Few will be able to afford much of anything.

Due to budget constraints, California faces the biggest cycle of wage cuts and job losses in its history. Especially vulnerable are high paid government and health care workers(and those that support government)....the cuts could easily affect millions of residents.

As many know, to destroy home values, it doesn't take every house on a street to be in foreclosure to impact all homes.....just a few distressed homes in the same area can drop values dramatically.

The most extreme case right now is in Michigan where home median home prices in a number of municipalities have dropped below $10,000.....simply due to the fact that there are no jobs and/or very low incomes......

It has become so bad in some areas that the government is now leveling ENTIRE sections of towns to save money!!!!!

Dozens of US cities may have entire neighbourhoods bulldozed as part of drastic "shrink to survive" proposals being considered by the Obama administration to tackle economic decline.

California will be no different, although not likely to reach Michigan extremes for a variety of reasons, if you think that CA home prices have come close to reaching a bottom......you may want to sit back, have a drink, and watch the spectacle. Fitch is only predicting an ADDITIONAL 30% decline, I am predicting at least 50% MORE.

If we continue down this path of government spending money it just doesn't have, few will consider supporting our uncontrollable welfare payments and interest rates will likely climb into double digits in very short order destroying affordability. Conversely, if we lower government spending to income, California could loose or cut wages on hundreds of thousands of jobs imposing MASSIVE pressure on an already stressed state.

The above exemplifies why we, as a nation, are stuck between a rock and a hard place!!!!!

Economists used to laugh when I predicted homes values would drop 50-70% a few years ago. We are already there in a number of areas across America. The problem is the problem is a BIG problem....and not very funny, especially for those getting evicted from their homes and families destroyed.

Now the distressed home issue has morphed into a state concern. Tax revenues are evaporating and the burden of taxation is being focused on fewer and fewer. If this process continues, soon there will be few left in California to support state services. I am already aware of a number of wealthier Californian's who have migrated from the state due to fear of draconian taxes. For confirmation, just give the Austin, Texas MVA a call and see how many of the new license applicants are from CA!!!!!

Without tax revenues, California's economy faces serious hurdles maintaining the states standard of living. Right now tax revenues are imploding. If the situation is not reversed soon, many of you may be surprised how many may leave California. And if you are surprised by the migration out of the state, you will really be SHOCKED how low home prices can go in a state with negative population growth.

For those of you who think Great Depression pricing is the bottom, you may want to talk to residents in Detroit. What receives little commentary is that in the 1930s, property taxes and insurance payments were insignificant. Ask yourself, how much more of a home could be purchased today if you didn't pay taxes and insurance on your house and deduct it from its current value.

Soon you will begin to understand that massive structural change is ahead. Alstry is confident of this and very confident of a very bright future. However, the change will be very convulsive to many existing paradigms and few are prepared.

Are you ready to leave the matrix??????

Let's hope our government officials don't take us on a path of WAR to distract us from the symptoms of change.

Prepare to be ZOMBULATED!!!!

Zombulation is a term created by the Institute of Alstrynomics defined as the point when one runs out of money and extinguishes all access to credit OR when the government taxes you 100% of your income and assets. In either case, you economically lose everything.

The private economy in America is DYING QUICKLY!!!!

Today Cravath, Swain & Moore Firm Asked Incoming Lawyers to Delay Start a Year!!!!

For years government has been growing as the private sector has been shrinking. A greater and greater percentage of private sector revenues came from government...WalMart(welfare, food stamps, unemployment checks), Defense, Health Care.....you name it.

Now the true private sector has become so small, without Ponzi like bubbles....there is simply very little money flowing out of the Private Sector to sustain a MASSIVE government sector.

Without government spending.....THE ECONOMIC SYSTEM AS WE KNEW IT IN AMERICA IS DYING VERY FAST!!!!!

The above is one of the largest law firms in America....and there is just no work for incoming lawyers.....slowing is happening at practically every law firm in America.....many partners are coming to work and twiddling their thumbs.....plus most of the law firms at this size generate a HUGE amount of revenues from government spending....SO IF GOVERNMENT SPENDING SLOWED...SO WOULD THEIR BUSINESS!!!!

California faces a similar issue......A HUGE PERCENTAGE OF CALIFORNIA'S ECONOMY SIMPLY COMES FROM GOVERNMENT SPENDING...

And now the private sector is simply not generating enough money to sustain California's massive government....at this point.....revenues are soooo low that it threatens a shut down of the entire state government unless a resolution comes forth.

Barring a miracle, California lawmakers will miss their June 15 deadline for passing a balanced budget -- a staggering challenge with the state facing a $24.3 billion shortfall amid the worst drop in state revenues since the Great Depression.

Gov. Arnold Schwarzenegger vowed Wednesday to let California government come to a "grinding halt" rather than agree to a high-interest loan to keep the state afloat if he and the Legislature do not close the yawning budget gap in coming weeks.

http://globaleconomicanalysis.blogspot.com/2009/06/showdo......

THIS TIME CALIFORNIA'S BUDGET IS MUCH BIGGER THAN THE GREAT DEPRESSION.

Soon the light will turn on in many of your heads and you will begin to appreciate Alstrynomics. We are running out of money in the private sector.....and government has grown so large.....that if we took every dime the private sector generated in profits....it would not be enough to sustain government since much of current private sector revenues actually comes from government.

Yes my friends, during the past 10 or so years.....the entire American economy has morphed into one big Ponzi scheme (Private sector borrowing money it didn't have generating profits for government and in turn government spending driving the private sector).....your government officials have known this for some time....so have foreign bankers......and same with Alstry....now you guys are about to leave the Matrix........it is my job to condition you so the shock won't kill you.

In the end.....ask yourself how small would our economy really be if the government stopped spending.....you will be SHOCKED by the answer if you take the time to carry it out fully.

The only solution is to equitably bankrupt the nation or your politicians and bankers will rob you dry and there will be nothing left for anyone except those who stole the money and left the country.

Remember, the other course of action is WAR of course!!!!! You think if Madoff could have chosen war....he might have thought about it instead of getting caught???

How OFF are Economists??????

As this is written, the government published U3 unemployment rate is 9.4%.....the U6 rate exceeds 16%. Many economists are predicting unemployment to peak at 11%.

WHO IS KIDDING WHO???????

The U.S. labor force is a bit over 150 million people. About 21 million are employed by Federal, State and Local Governments who are generally paid better than average private sector workers.

Many were hired in the last eight years as tax receipts to government gushed in from revenues, profits, and incomes generated in the credit bubble years. Taxes were flowing and government was growing....at unprecedented rates. According to recent data, TOTAL government spending approached $6.5 TRILLION dollars.....to put that number in perspective.....it approximates half of our total GDP.

With the growing number of government workers also came growing government spending on practically everything including technology and supplies, real estate, and health care. The Ponzi like boom in the private sector created fantastic prosperity in the public sector which in turn drove revenues back into the private sector........and we could go on and on and on......

But as too many borrowed too much.....the accumulated debt became a crushing burden and borrowers started to default and banks slowed lending. The party came to a halt and revenues evaporated all over the place. Nowhere more obvious than new home construction with sales down over 75% from peak. Auto Sales are down over 50% and retail sales are evaporating as thousands of stores are shutting down around the nation.

As sales and profits slowed, businesses started reducing workforces and millions of workers went from being taxpayers to unemployment recipients. In addition, millions of formerly highly paid workers in real estate sales, mortgage/finance sales, and construction saw their incomes contract dramatically.

FACT: The top 5% of taxpayers pay about 60% of the taxes.....and many of these taxpayers have seen their incomes drop materially in recent years without much prospect of returning to the good old days anytime soon.

Tax receipts to government declined sharply this year through April, Federal Income Tax receipts are DOWN 44%.....and state and local governments are not doing much better with collections.

In the next few weeks....state and local governments are going to have to make some very difficult decisions regarding budgets and labor reductions. 20% cuts are being routinely contemplated.

So let's think about this for a second.....if government cuts 20% of its labor force.....that alone will increase unemployment by about 3% taking the U3 rate to over 12%....WITHOUT factoring the impact of MASSIVE government spending cuts on the private sector.........which will likely take U3 to over 15% without too much effort.

A 15% unemployment projection fails to account for likely additional deterioration as more and more individuals and businesses get Zombulated......a term we will define in a future blog.

If you think a 11% peak unemployment projection is reasonable based on the currently known facts......you have little appreciation for Alstrynomics......the practical application of facts to economics.

Economists better wake up......because the economy just may shock them in the very near future!!!!!!