While we don’t hear much as for figures on the current real estate mess, there is much to worry about. News agencies and media have taken notice to a growing number of foreclosures, but very few of the times are actual statistics shown. The best projections have now put California real estate foreclosures at 9 times what they were in 2003-2004 when them market was booming. Even in 2007, with foreclosures numbering 250,000 the figure is almost doubled year to year with an estimated 450,000 homes going under in 2008.

This is a very sobering look at how the housing bubble is coming to an end. Foreclosures mean that houses will be taken by their owners (the banks) and readily resold on the market. If this holds true, California is going to see an additional 450,000 homes on the market in 2008-2009 due entirely to foreclosures. The balance of real estate will quickly turn to the buyer from the seller. In the days of the real estate boom, a house could be bought and sold for a tidy profit in under a month. Now it takes several months to sell a home even at a depressed price.

There is one thing for certain, California real estate will soon be sold on the cheap. Investors and homeowners take notice, an influx of homes for sale will again drop prices. This cycle will put even more homeowners in distress as their HELOC and other mortgage loan debt will be higher than the value of the house. This is known as being upside down, where the amount of debt does not equal the amount of equity in the home.

If real estate prices continue to drop, as they should with the growing supply, more homeowners will have to foreclose. This is a deadly cycle that will repeat itself until the houses find a reasonable market value or until the investment days of real estate come back around. Either way, the market value should be much lower than current value. Selling a home takes much longer now than it did in the boom days, which means more mortgage payments in between sales and more debt for homeowners.

For the seasoned investor, times like this should call for a prudent but optimistic look at buying real estate in hot markets like California. While things don’t look great right now, there will be a sizeable amount to make when real estate hits its lows and supply ebbs. But for now, its best to take a pessimistic look at buying a second home. Until this new supply of foreclosed homes is sold, there isn’t much stopping real estate prices from falling.

Banks typically sell foreclosed homes on auction, which can mean discounts as high as 50% for luxury housing. When people start getting word that homes are selling for $400,000 on a typically $750,000+ block of homes, the rest of the real estate will assume a similar price point.