Slammed by the credit crisis, California real estate markets are reeling in the depths of an all-time economic crisis amid falling home values and record foreclosures.

The California economy is faltering in many areas as a result of the foreclosure epidemic, triggered by Wall Street hedge funds that invested too heavily in new creative mortgages under written only to sell to investors to make windfall profits. As a result of the economic fall out, financial markets have been thrown into chaos for nearly a year and lenders have tightened mortgage under writing standards.

Housing markets in California, no matter how resilient in the past, have been damaged with near record deflation. The only time California saw deflation in its housing markets like this was during the U.S. Savings and Loan Fraud Crisis in the late 1980’s.

The current real estate crisis appears to be much worse, and is producing a staggering record number of foreclosures in the state, which by many accounts may see more than 1-million foreclosures as a result in California alone.

City	Forecast
Los Angeles	− 13.5%
Inland Empire	− 15.2%
Anaheim	− 13.7%
San Diego	− 15.4%
San Jose	−   9.1%
San Francisco	−   7.9%
Oakland	−   9.1%
Santa Cruz	−   8.2%
Fresno	−  11.5%
Sacramento	−  14.5%
Bakersfield	−   9.1%

In greater Los Angeles home prices have been sliding for two years and prices will decline further in 2008 at a rate of 13.5% on the average home, Housing Predictor forecasts. Neighborhoods in the San Gabriel Valley and at the opposite end of the greater Los Angeles area in San Fernando Valley will fall further as higher adjustable rate mortgages become too much to handle for many.

One of the nation’s most troubled housing markets is in the Southern California Inland Empire, where foreclosures are listed for sale on almost every block. The area includes Riverside and San Bernardino and it’s one of the country’s worst subprime and conventional adjustable rate market disasters.

Foreclosures have reached all-time highs in San Bernardino and Riverside, and are only forecast to increase over the next two years as more adjustable rate mortgages reset. The housing crisis is impacting the local economy as more and more home owners leave their homes vacant. A program has been set up by two Inland Empire cities to maintain the growing number of deserted homes. The Inland Empire is forecast to see 15.2% in deflation through year’s end on the average home.

The home of Mickey Mouse, Anaheim in Orange County has already seen its prices fall as much as a third and more price deflation will occur through the end of the year, according to the Housing Predictor forecast at 13.7%. Home prices hit new record highs before the housing market collapsed in Orange County.

California will lead the nation as a whole in housing deflation through 2008. But things will get better in the Golden State, which has more residents than any other single state, and more research and development, high tech wonder boys and Hollywood.

Further south in the city that has the best weather on the planet in San Diego the market has been hit hard by slower real estate sales. Prices appreciated to record all-time levels until the housing market collapsed. San Diego will see a further erosion in values, averaging 15.4% on average and foreclosures will increase as a result of an over-abundance of refinancing and over financed homes.

Up north in San Jose, which has some of the highest priced homes in the country, the mortgage melt down is just beginning to get rolling. The market is ripe for a major fall with a recessionary economy. Santa Clara County, also known as Silicon Valley as the hub of high tech and home to companies like Google and IBM, will see prices deflate at the rate of 9.1% on average and the declining values will last beyond the year.

Up Highway 101 in San Francisco , the city that sparkles like a jewel, prices have begun to flatten, but nothing like they will this year. More homes are owned in The City by The Bay outright than many other urban markets in the nation. But the growing movement towards financing towards the end of the housing boom will have a major impact on San Francisco home values, projected to deflate 7.9%.

Across the bay Oakland has already begun to suffer with lower prices and 2008 won’t be any better, according to the Housing Predictor forecast. Oakland will see prices fall an average of 9.1%.

Down south of the bay on the Pacific Ocean still quaint Santa Cruz has seen growth slow after years of development and will see home prices fall 8.2%.

Over in the central valley, however, the migration of citizens from Mexico, who purchased homes has already begun to have a major impact in Fresno and neighboring Tulare, where average home prices will take the worst hit in years, falling an average of 11.5%, mainly because of increasing foreclosures.

In Bakersfield just down the road home prices will deflate further in 2008 at 9.1% as more foreclosures affect the market place.

Up in Sacramento the housing market has all but collapsed, and things are only forecast to worsen as foreclosures mount and home owners leave for new shelter. The subprime crisis is doing a whammy on the state capitol and Sacramento will see values fall an average of 14.5%.