Understanding how California foreclosures can affect the broader economy, not only in California but also across the nation, is important in these economically-trying times, if only to better understand how the nation has ended up in a steep recession of late. It’s an old axiom that what happens in California eventually happens in the rest of the country, and when it comes to real estate it’s very true.

Most economic experts look at Wall Street and California as the twin epicenters of the current steep recession. Whether Wall Street and its problems would have still existed without a collapse in California real estate markets is a question for debate, though it’s accepted that California helped to serve as a warning sign for what was to come. Unfortunately, many ignored that warning, it would seem.

For least a few years before the markets took their dive, California had been experiencing issues with its housing markets. Many investors, though, chose to ignore the issues with California, as well as Florida and Arizona, which both began experiencing similar issues, though almost all such warning signs were ignored due to irrational exuberance in the real estate markets, it looks like.

Out in the Golden State, real estate price declines had been building for about 36 months prior to late 2008. California property values at their lowest point and then continued to drop even more, though they lately seem to be stabilizing and even climbing slightly. This slight climb, though, is extremely fragile and susceptible to collapse with any bad news California may end up having to confront.

CA foreclosures, then, might be looked at as another sort of warning sign because there are at least six California cities in the top 10 cities across the country in terms of their own rates of foreclosure. In fact, three states — Arizona, Florida and California — are contributing 44% of the total number of foreclosures in the country as of late.

Put everything together in terms of what was going out in California (which had been dealing with building issues for a decade or more when it comes to its property inventory) along with the possible effects of Proposition 13 — which may have intensified the problem — and one begins to understand how CA foreclosures can affect the broader economy. At the least, the rate scares investment off.

The reason why much of this is so and why many investors are so jumpy is that they aren’t exactly positive that the economy and housing markets have completely bottomed out in many parts of the country. Therefore, they are a bit hesitant to get back into these markets without at least a chance of getting out what they plan on putting into the market over the short and long run. Markets stay depressed when this is the case, for a fact.

It can then be said, with a great deal of certainty, that what goes on with the rate of CA foreclosures affects not only California’s economy but the nationwide economy to some extent. When foreclosure rates out in the Golden State finally begin to decline appreciably and steadily it might be that investors across the country will feel better about getting back into the markets in a big way.

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