Wait for the Bottom in California Real Estate


The foreclosure spike in California, back to where it was before the California state government made it difficult to foreclose, are daunting for those looking for a bottom in real estate there.  There's plenty of real estate for sale and only a couple of areas in California that have reached levels of price equilibrium.

What's equilibrium? I am using the term to mean:

1. New homes are selling at the price of foreclosed homes, which means,
2. It is no longer in the interest of homebuilders to put up new homes because they can't make much money, which means,
3. Supply isn't being added, which means,
4. House price depreciation has run its course.

We have that in some areas of southern California according to KB Homes (Stock Quote: KBH), a company that breaks out regions that have stabilized.

While it is incredibly disconcerting and sad for the people who lose their homes, or have to walk away from their homes, I would emphasize that as long as there is an unnatural impediment to foreclosure, the prices of homes are artificially high and so no bottom can be reached.

I know the chatter surrounding the spike in foreclosures is going to spawn a whole new round of fretting about the state of the housing market. Remember we have not seen bottoms in any areas of the country until homes come down 40% from their peak.

This new foreclosure surge means that we are going to get where we have to go. Painful.

But fast.

There is only one region that I would considering buying in California and that's the Inland Empire, where KB Homes says that housing prices have bottomed.

If you're not interested in the Inland Empire, then the play here is simple: Don't buy real estate in California, or shares in KBH, until we reach the bottom.

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San Bernardino County, click here.

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