No one state has been hit harder in the mortgage market crisis than California.  Research today shows why there is so much trouble there.  In certain areas, ridiculously small homes are going for enormous prices, depending on area.  These little cracker boxes in any other part of the country would go for 50-65K, yet they are selling in CA for upwards of a half million.  And I am talking 2 bedrooms, 1 bath, maybe 925 square feet.  No McMansions, but priced like one.  Sad.

In California, homes reached a peak median price of $597,640in April 2007.  By June of 2008, the median price in California is hovering at $368,250, a drop of 38.38%.  I do not think that this has reached bottom yet, either.   There is a budget crisis on in CA now, with the Governator cutting state jobs back to the minimum wage and erasing part timers from the state payrolls.  This alone will drive more people into foreclosure.

California is also seeing $300 billion in pay option ARM’s to reset in the later part of the year.  The Pay Option ARM is one of the most poorly put together mortgage products ever to face this planet.  It has several options, but the most widely used option is to pay the minimum payment on the property.  Your payment is set for 12 months at an introductory rate. Then payment changes are made annually and a payment cap limits how much it can increase or decrease each year.  Explaining the pay option ARM is another whole post, but the sad news here is that up to 80% of the people who have these loans make the minimum.  When things go sour down the road, they find themselves with a loan that is not paying down, but paying up.  All for a piece of the American dream, which lending institutions have been more than happy to push.

When the market levels out, we will see a lot more difficulties in CA than anywhere else in the nation.  Analysts do not feel that it will correct until May of 2011, and homes will then be valued at prices from May of 2003.  When all is said and done, we will see CA in a lot more hurt than the rest of the country, where mostly home values are more realistic.  Until then, hold on to your hats.  It is going to be a tough ride.