Living the California debt based dream – Bankruptcies in California increased 557%

drhousingbubble's picture

The California housing market sits in an odd stage of limbo. You can see that the public for the most part is fully aware of the situation like an Alamo standoff in real estate. People fully acknowledge now that banks are holding off a tremendous amount of inventory. There is little that is secretive about the shadow inventory at this point. Yet with all the distressed properties, people are looking at artificially low rates and are wondering if this is the time to buy (assuming they are not one of the 20+ percent that are underemployed). Adjustable rate mortgage use is at all-time lows and why would you not go with a fixed rate given the insanely low rates? Yet the market and economy is not healthy. Mortgage rates and low inventory would be signs of a healthy market in other times but the opposite is the case. What does this mean for housing going forward?

Low use of adjustable rate mortgages

The use of adjustable rate mortgage is at all-time lows:

arms as california loans

Source: First Tuesday

The use of ARMs is practically non-existent when at the peak it was nearly reaching 80 percent of all loan originations. This is the Alt-A and option ARM universe that we once inhabited. The low usage of ARMs might be obvious on the surface but I think it tells us more about the market. Some ARMs currently have incredibly low rates (yet many go under conventional underwriting standards requiring a larger down payment). The argument coming from some is that mortgage rates will remain low for a very long time similar to what Japan has experienced. If this is the case, then wouldn’t you think that going for an ARM with a 1 to 2 percent cut in APR would make sense? My take from this is that the public doesn’t believe that the Fed can keep this artificially low rate going for a long-time so grab those fixed rates while you can. Take a look at all the bailouts and actions the Fed has had to do to keep rates low:

fed actions mortgages easing

Source: Bruce Kasting

In other words, the Fed has had to become incredibly active and become even more aggressive just to keep rate at where they stand today. The low usage of ARMs reflects the notion that this is the rock bottom for interest rates and people need to lock in before something happens. Yet the bigger question is, what is happening? The economy is still facing tough challenges ahead. State and Federal governments will get a piece of their pie. Even if you look at some places in Orange County with high HOAs and Mello-Roos the fees are already starting to add up in non-mortgage related items.


The state of the California economy

Everything would seem to favor a booming housing market but that is not happening. You essentially have a sub-group of folks with equity in their homes trying to trade to one another and first time buyers trying to scrape together enough for that 3.5 percent down payment FHA insured loan. This is a reflection of a poor economy more than a healthy one. Take a look at bankruptcies in the state:

bankruptcies in california

Keep in mind that the falloff in 2006 hit because of the rush to file in 2005 before bankruptcy law became tougher and more difficult to process. We are very much near peak levels under these new stringent requirements. In 2006 we were closer to 35,000 bankruptcy filings while last year we hit 230,000 (an increase of 557%). What this dramatic change signifies is that the underlying economy is still very weak and many people are unable to meet their current debts. A large part of this is driven by housing debt via mortgages or HELOCs or other forms of debt based spending. Keep in mind over 30 percent of California mortgage holders are currently underwater owing more on their home than it is currently worth.

Again the question remains, who can pay for these homes with a poor economy? The major growth group in the state is from baby boomers:

california population growth by group

You have an aging population that essentially can sell to one another and transfer equity to each other and a much less affluent younger population that is mired in other forms of debt including student debt. The above chart highlights where the growth will be. People form households in the 25 to 44 age range and you see growth in this segment is not exactly dramatic. Household incomes are flat for over a decade:


Moving forward this is very important. The leverage being afforded to the current market is driven by a few artificial items:

-Federal Reserve market actions as shown by a previous chart (risk of market disruptions become larger when confidence starts breaking)

-FHA insured loans requiring very little down (this is getting more expensive with default rates)

-Controlled shadow inventory by banks artificially restricting supply. This is artificial because accounting standards and bailouts were essentially developed to change the way banks did business at the expense of the public.

The public now largely realizes that banks are operating in a pseudo-market and prime properties are being allocated even before they hit the MLS. I’ve gotten a few e-mails from folks seeing some interesting action in the short sale process especially when it comes to more prime properties. Again, this is not a “free market” but one that is being carefully managed. Yet you need to ask to what end? The real economy doesn’t seem to be producing the jobs to sustain current prices. This November taxes will be on the table. When money is running short and employment opportunities seem limited you can expect the unexpected. Those that think housing is balancing itself out on its own need to look at that Fed chart again and examine FHA insured loan default rates.


Did You Enjoy The Post? Subscribe to Dr. Housing Bubble’s Blog to get updated housing commentary, analysis, and information.

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
socalbeach's picture

After listening to a recording of Bruce Norris' all-day N Cal seminar (similar to the S Cal one I attended), my conclusion is that he is correct and now is a good time to accumulate CA real estate.  I'm sure it would be possible to lose money if you don't know what you're doing, so familarizing yourself with the area you plan on investing in is essential.  Norris invests in the more distressed and less desirable areas which yield about 10%, whereas I prefer the higher end areas that yield only half as much.  Also, there's no big rush as the national economy is probably heading into another recession.

If you think gold is a better holding, take a look at this chart.  From the Nov 15th gold price used in the chart, gold has dropped about 11%, real estate in this area (S OC coastal) is up, and rental real estate produces income.

Cole Younger's picture

The cost of living here in California continues to increase. They nickle and dime everyone with taxes, fee's and higher cost special blend gasoline. Now the state is asking for people to pay more taxes as California now has a 16 billion dollar budget deficit. I say fuck them. The politicians are just going to have to cut some more..If they have to cut teachers, so be it...get rid of the illegals and we won't need as many teachers. Cut the police as well. They walk around any more like militarized thugs beating homeless people to death and using 90 rounds to kill some guy on the freeway. Inefficiant use of bullets and putting inocent by standers at risk of injury. There is tons of crap they can cut but they always always say teachers, fireman, and police...Call there bluff...They are not going to cut them..

Foul Harold's picture


"Zen fascists will control you
100% natural
You will jog for the master race
And always wear the happy face"

California Uber Alles!

Lednbrass's picture

Great song from those long ago days before the left in the US became shameless apologists for authoritarian statism.  Such a song would never be written today.

Psyman's picture



Fuck it.  Fuck everyone in it.  Fuck the illegals, fuck their anchor babies.  Fuck the faggot hollywood Jews, and fuck their blond sell out whores.


And fuck the country that allows this shit parade to continue unabated.  Fuck America.


I wish nothing but misery upon you.  I'll be in Australia, or elsewhere.  Watching and chomping on pop corn as you fucking burn.

lakecity55's picture

OK, but when u find u r not happy in Oz, please do not complain about Australia like that to the natives.

JackT's picture

Somewhat unrelated, whatever did happen to the discussion about state deficits? I guess if you ignore it long enough it will just go away

hivekiller's picture

California govt. is now $16 billion in the hole. Wait till they start cutting welfare and the diversity go berserk.

Freddie's picture

Wow. I saw the stories. Huge miss.  They though $8 billion and tax revnues were down.  LOL!  Talk about squeezing the turnip.  I guess there is nothing left to tax.

dolph9's picture

I like California but like much of the country it's become a decrepit and overpopulated cesspool.  Whenever I go to California, I feel like the people around me are idiots.  Beautiful people, and land too, but idiots nonetheless, airheads with no sense of history or decorum.  Living in fantasy land, a perpetual Disneyland.

I think eventually California is going to be ripe for secession.  The Asians and Mexicans who grow up there aren't going to take kindly to being ruled by a Jewish and Wasp elite from the other side of the country.

Psyman's picture

Mexicans and Asians are sheep.  They are easily ruled by any brutal totalitarian force.  I wouldn't worry your pretty little faggot head about the gooks and spics.  They are no threat to anyone.

thefedisscam's picture

Go read some history, CA belonged to Mexico before US-Mexican War.

So you can whine ALL you want, Mexicans will take CA back, one way or another, only under the Star and strip flag,  LOL



jomama's picture

yeah, because you can totally make accurate sweeping generalizations about 38 million people.

Yen Cross's picture

 California? The state I was born in!   I can't recognize , ( California) anymore!

  Long live the " High Sierras"!

crawldaddy's picture

i dont get it, I just dont see the draw of CA. Its mostly freaking desert and while the coast is nice, its nothing special, its over crowded and over priced.  Then again I dont get NY city either, You couldnt pay me enough to live like a rat in that overpriced overpopulated city.  Now upstate NY, now you are talking. 

Psyman's picture

Comparing Cali to NYC is fucking ridiculous.  Those of us that appreciate climate and weather know what Cali is about.


Cali minus the mud people is heaven.  Sadly, that ship has sailed.  And nothing but misery awaits.


Sad, because California is truly beautiful.  And anyone that has spent even a year there knows it.

kumquatsunite's picture

Last time I lived in California was the mid-1970s; you can't imagine how beautiful it was: roads open with no traffic to speak of; everyone spoke English; few fast food joints but lots of very personal small restaurants with real food; tons of small businesses; everyone spoke to everyone else because...we have a common culture and a common language and a common...everything.

Had an avocado tree in my yard. Went to the beach to walk and no dog pooh or languages that made me feel a stranger in my own land. California was given to the floatsam of the world under the guise of "white people are bad people let's destroy them via immigration" and "we've always had immigrants". That last one is important because mostly no one addresses the fact that we no longer have land that needs settling or factories needing strong backs. California...was magnificent. Sorry you didn't get to see it.

Psyman's picture

Even what I did see, the California of the 21st century, was beautiful.  I can hardly imagine when California was full of white people; and promise for the future.  It cripples me to know that California has been forever sacrificed on the altar of multi-culturalism and diversity.


But I may spend a few months there soon, before I leave this fascist police state you call America forever.  I need to see the Red Woods, and Hike the many legendary trails before I flee the totalitarian police state.  Funded by credit cards that will never be repaid.

Vlad Tepid's picture

Don't miss Monterey...

This hallowed time you can hardly imagine was all the way back in the 1980s when I was a kid.  Didn't even notice how it had changed under my feet until my wife (who is fromanother country) pointed out that she thought CA was supposed to look like "Back to the Future."  I said that it did, but one drive through our small Central CA town quickly disabused me of that notion.  We looked at each other, packed our bags, moved out of the country and will only go back for obligatory funerals.

Gringo Viejo's picture

But I did get to see it. I was 22, just out of the Corps when I moved to the Bay Area in '72. And having remained here over the last 40 years, I watched it unravel. Looking at California today, I feel a great sadness combined with some of the best memories a man could have. I remember driving a Honda 750 across the Bay Bridge at 115 mph and actually becoming airborne for a moment; I remember being invited aboard the "Greenpeace" while docked in the Bay (the one the French later sunk) and getting into a fistfight with the cook because I'd been drinking Anchor Steam beer all day he said something I didn't like; I remember getting into a fistfight with 2 (count'em...2!) of L Ron Hubbard's boys because I'd been drinking Anchor Steam beer all day and didn't want to buy their fucking books. I remember seeing the Jefferson Airplane pull into a McDonalds in Daly City in a Rolls Royce. I remember.......I sure liked Anchor Steam beer.

Psyman's picture

Die faster boomer parasite.  We need to repair the damage you have wrought upon America.

Gringo Viejo's picture

Get into therapy son. You're currently null & void.

Freddie's picture

Yup.  It seems like the tipping point was Charlie Manson.  AFter that - the place became and insane asylum.  Thank the liberal scum from NJ, NY, DC, Baltimore, Philly who emigrated there in the 1960s and ruined it.  Waxman, Boxed, Pelosi, Feinstein et al.  All east coast scum who moved to CA and turned it into hell.

AustriAnnie's picture

Mostly desert?

Have you ever been to California?

It is mostly forest, cropland, and range land.  

If you just drove through the Southeastern desert, you would have missed 90% of the state and would be under the assumption that CA is mostly desert.

Snakeeyes's picture

Living the dream ... on disability!

Since July 2010, more people have gone on disability than the decrease in unemployment. By 100,000!

Gringo Viejo's picture

In response to the post about California schools and Proposition 13 which (on paper) limits our property taxes I wanted to point out 2 things. As to property taxes, 2 weeks ago our local school district board, voted into existence, a $250 yearly assessment on homeowners for "schools". Doesn't sound like much, right? But done again and again by various competing local agencies, it's like the death of a thousand cuts and some people are being priced out of their homes. This is how government gets "over on" Proposition 13. Last I would point out, if history is any guide, this assessment will end up funding "administrative" positions. Not a dime will been seen in the classroom. The CSTA and other "public sector" unions (which is a contradiction in terms, for anyone that cares to think about it) "own this 'burg!"

Son of Loki's picture

I hear ya!

I was sooooo happy to sell my old house. Taxes went from $6,200 a year to over $12,800 in a mere 5 years due to county, city and school tax increases....

socalbeach's picture

I'm pretty sure local CA school boards don't have the authority to pass property taxes without voter approval.  See this for example:


School board OKs bond for June ballot
March 16, 2012

"School board members voted unanimously Thursday to put on the June ballot an $81 million general obligation bond for school facilities that would cost the average property owner about $250 per year. The decision to put the 25-year bond on the ballot was controversial during a time when many parents are growing more distrustful of Cabrillo Unified School District."

Higher (proposed) taxes on property owners is occuring throught the country, not just in CA.


kumquatsunite's picture

Heck,let's not pretend there's anything happening in the classroom. My friends in their eighties are incredibly well-educated and all they had was chalkboards and a few books, oh, and the Bible. (just saying). Now we spend MASSIVE amounts on schools, most of which is spent on the superintendents salary, administrative staff, teachers who show up for work sick because they want to add their "sick days" to their retirement pay, and teachers who are themselves so illiterate they couldn't teach anything if they want to. In Germany, teachers are required to be able to teach all classes up to andthrough eighth grade, as I understand it. I,myself, could teach any class but physics or calculus. Our students are stupid because the worst students go into teaching where it's all theory and pass/fail classes at the university. The Freakonomics guys once did an interview I heard where they said that the reason kids were so well-educated in the "old days" was because all the teachers were women and those women were really smart because they had few jobs they could get. Now the smart people NEVER go into teacher; the schools get the dolts who can only, in turn, turn out dolts. DOH> (Watch Judge Judy: NO ONE knows how to speak simple English; no proper conjugation; no proper structures of English; my gawd this country is as stupid as IDIOCRACy. 

Psyman's picture

It is true that education majors have the worst scores on various standarized tests, including the GRE.  But I wouldn't say that women, of all fucking people, are the answer.  98% of all females I've met in my entire fucking life have been brain dead morons.


If you want to know why the American educational system is failing, look to those that run it, 98% of which are female.

tempo's picture

In Texas, retirees must move from the big cities because of the enormous property taxes. One of the reasons, CA property value are higher is that retirees don't have to move due to illness since property taxes for older folks are very low.

Psyman's picture

In most of the small/medium size towns in America there are two major industries:


1. Hospitals

2. Funeral Homes


You old fucks can go fuck yourselves.  Die faster.  We younger folks need the inheritence because you have ALL THE MONEY.

QQQBall's picture

I was talking to a commercial real estate broker. He said a group of Chinese bought an office building to qualify for a Go'vt Green Card program. Anyone heard of this?

Maos Dog's picture

Yes, I don't remember the name of the program but if you are a high net worth individual and make a business investment in the country over 500k you get a path to citizenship.

Totentänzerlied's picture

Of all ZH's horrifying, bang-your-head-against-the-wall charts, this one is king:

It also does more to explain the state of 1/2 the world than probably any other chart out there.

AustriAnnie's picture

We just have to remember it is a chart of growth, not overall size.  Still, the boomer population ageing and the demographic changes in the U.S. have huge implications (especially since its not size of, but changes on the margin that have the most profound effect).

But its also wise to remember that even though that group is growing the fastest, it does not make up a majority of the population.   And since the chart tracks changes, it will show massive growth just because they are all entering the cohort at once.  We will see a sudden dip in growth in following years.

By 2029 (when last of boomers reach age 65), the Baby-Boom population is projected to be only about 16 percent of the total population.

kumquatsunite's picture

In bad economies, the child birth rate drops dramatically, so you probably won't see as many births as you might think. Thus, the "baby boomer" generation may be bigger proportionately than one might expect.

Vlad Tepid's picture

'Course, if it gets really, REALLY bad, the birthrates skyrocket.  Look at Niger.  CA is about 3 steps away from that.

ThirdCoastSurfer's picture

The explosion in over 65 is the result, of course, of WWII.

Therefore, this chart must go way beyond the US and must encompass most of the industrialized world, though we hear very little about it. 

User 3461's picture

Isn't it all a perfect example of how statism plays out?: soaring prices, crap product, empty shelves.

Think of the decades of shit-for-brains laws: special car regs, labels on hoses about water not meant to be drank - in CA, power efficiency regs... All of this CA-stuff has ruined it for them, and contaminated production for the rest of us.

We could have all said, piss off!, years ago; we didn't. Now they're slightly ahead of us on the ride down the drain. I blame the rest of us for having enabled them for so long. (and just like Europe, > 1/2 century of us "defending" them has carved out fungibles for their welfare states)

Gully Foyle's picture Estimated Prophet Lyrics Grateful Dead

My time coming, any day, don't worry about me, no Been so long, I felt this way, I'm in no hurry, no Rainbows and down that highway where ocean breezes blow My time coming, voices saying they tell me where to go
Don't worry about me, nah, nah, nah, don't worry about me, no And I'm in no hurry, nah, nah, nah, I know where to go
California, preaching on the burning shore California, I'll be knocking on the golden door Like an angel, standing in a shaft of light Rising up to paradise, I know, I'm gonna shine
My time coming, any day, don't worry about me, no It's gonna be just like they say, them voices tell me so Seems so long I felt this way and time sure passin' slow Still I know I lead the way, they tell me where I go
Don't worry about me, no, no, no, don't worry about me, no And I'm in no hurry, no, no, no, I know where to go
California, a prophet on the burning shore California, I'll be knocking on the golden door Like an angel, standing in a shaft of light Rising up to paradise, I know I'm gonna shine
You've all been asleep, you would not believe me Them voices tellin' me, you will soon receive me Standin' on the beach, the sea will part before me Fire wheel burning in the air
You will follow me and we will ride to glory Way up, the middle of the air And I'll call down thunder and speak the same
And my work fills the sky with flame And might and glory gonna be my name And men gonna light my way
My time coming, any day, don't worry about me, no It's gonna be just like they say, them voices tell me so Seems so long I felt this way and time sure passin' slow My time coming, any day, don't worry about me, no
Don't worry about me, no, no, no, don't worry about me, no And I'm in no hurry, no, no, no, don't worry about me, no

Bringin It's picture

This is my theme song Gully.

My time coming, any day, don't worry about me, no ...

Typo Gully.  Rainbows end, not Rainows and; as in --> Rainbows end down that highway where ocean breezes blow


Gully Foyle's picture

Bringin It

The irony of the song is massive

Flocking swans's picture

A peaceful place or so it looks from space,
A closer look reveals the human race.

I am Jobe's picture

CA started down the path of Socialism a long time ago and became the beacon of light  for the rest of the USSA. Amazing that the makesup and crap stuff that is exported out of CA is now truly the end of the intelligence and generations will pay the price. At least the next generation will be stupid or stupider than this one for sure.

WTFx10's picture

“If one understands that socialism is not a share-the-wealth program, but is in reality a method to consolidate and control the wealth, then the seeming paradox of super-rich men promoting socialism becomes no paradox at all. Instead, it becomes logical, even the perfect tool of power-seeking megalomaniacs,” explained the late Gary Allen. “Communism or more accurately, socialism, is not a movement of the downtrodden masses, but of the economic elite.”

All Risk No Reward's picture

I thought Stalin was dead...  who gave the negative vote when it is so very, very painfully obvious by now.

“Those who will not use their own brain,
they are nothing more than meat on the table
and beasts of burden by choice and consent.”
- Albert Pike