The LA Times today ran an article showing home price declines in the usual suspect locations like San Diego, Orange, Riverside, and Ventura counties, but price increases in LA County despite horribly low sales volume.
What is driving the market? Home prices rose way too fast against income growth in the declining markets, and its time to give back some of the gain. Ninety percent of the foreclosures happening right now are on homes purchased at the peak in 2005 and 2006. The mortgage industry is in chaos as the risk in the market is forcing a liquidity crisis. Jumbo rates are rising which will impact the high-end soon, and the sub-prime market is closed for good (at least until the next bull market).
The markets close to the foreclosure fault lines may see horrific price declines between 20% and 30%. In fact this post from the OC Register highlights the dramatic impact in a Santa Ana neighborhood hit hard by foreclosures.
So what does this all mean??
If you live close to a foreclosure fault line, either cut and sell right now, or hold for the long term. If you are buying, in these areas, buy wholesale not retail. Search foreclosure listings and find motivated sellers, not those who are out of touch.
If you are located in upper-end markets, wait for the irrational liquidity crisis on the jumbo loans to pass. Buy where you see opportunity.
This is a market correction, and the markets that had no business escalating so fast will be returned to earth soon. Keep in mind, the upper end market was driven by a large wealth explosion among millionaires and supply is historically contained in those markets.