Having witnessed the S&L crash and the down cycle in RE in the early 1990’s, I would call this “much worse” without a doubt. Foreclosures topped-out in SD County at around 700 a month after years of downward pressure. We’re now near 2,000 a month in about 1 or so years. And it seems to be growing with more in the pipeline. Almost anyone who bought from 2004 on is now upside down. That’s a lot of transactions. Throw in refinance as well and you’ve got many people who owe more than their home is worth. Unemployment growing and wages totally stagnating for the last 8 years.
And this is systemic, not just CA. Many parts of the country are going through this and now it appears that RE bubbles are bursting in countries around Europre and Asia.
I think that any rise over 1% more would be the final nail in the coffin of RE. So it would be hard for it to rise. I suspect that the new loan world will be one of at least 20% down and extensive documentation on income as well as much more conservative DTI ratios. This of course may have a similar, albeit, less effect as raising rates in that it will take a lot of potential buyers out of the market, while mitigating more of the risk.