In the last few days, we have gotten a better picture of macro trends impacting the California economy. You would think that a bad overall economic climate would at least temper the bullish attitude of some folks that think California housing is somehow going to have another blowout year. This week the non-partisan California Legislative Analyst Office announced that California will be dealing with $21 billion in budget deficits in the current and next fiscal years. Keep in mind that back in July when we patched up $60 billion in deficits, the government was projecting a $500 million surplus in the general fund for the current fiscal year. The new update is showing a $6.4 billion gap that is as wide as the Grand Canyon. Today, we also find out that the California unemployment rate is up to 12.5 percent; if we look at the underemployment rate it is now up to 23 percent. The job losses keep coming but what is more troubling, the “help wanted” signs are not going up.
Without a doubt, Alt-A and option ARMs are already causing problems internally on the balance sheet of banks:
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