It is no secret California housing prices have gone to the moon over the past several years. It is so expensive in California that only a small percentage truly can afford a home. But the bubble has popped, prices have stopped increasing, and foreclosures, although minimal, have climbed up. Three things that will happen as a result: (1) prices will come back to earth; or (2) inflation eventually will catch up to home prices; or (3) a little bit of both.

Merced, California is in the Great Central Valley near Yosemite. It is also home to the newest University of California (UC). And it has been a hot bed of property investing by people who thought a new UC would bring boom to the town and quick profits. Unfortunately for them, it’ll take fifteen to twenty years before the UC is fully built out. For now, it has about 1,800 students.

Today, Merced has 988 houses for sale, according to Realtor.com. Trulia shows 1,269 homes for sale in Merced, of which 938 (74%) are in some stage of foreclosure. That means only 331 homes (26%) are not officially distressed sales. RealtyTrac, a company that tracks foreclosure activity says 1577 properties are in some stage of the foreclosure process: 716 in pre-foreclosure, 240 at auction, 548 bank-owned, and a smattering of others in other foreclosure categories. That is a huge, huge number in relation to the number of homes for sale. The RealtyTrac number is likely a harbinger of things to come. There are 25,000 housing units in Merced, according to the Census Bureau fact finder, thus approximately 6.3% of all homes in Merced are in some stage of foreclosure right now. Also, according to the Census Bureau median household income is $31,000 and the median home price is $344,000. Note: In the three days it took me to compile this post (between all the other things I’m working on) the number of homes for sale and in foreclosure on Trulia increased by about 10 each and the percentage of homes for sale in some stage of foreclosure ticked up a percentage point. In those same three days, the RealtyTrac numbers also increased: (a) homes in some stage of foreclosure: +48; (b) homes at auction: +23; and (c) bank owned: +23.

Compare Merced with Rancho Cucamonga, a sprawling city east of Los Angeles. Rancho Cucamonga sprung up as a bedroom community to house the many commuters and their families over the past decade.

Today, Rancho Cucamonga has 931 houses for sale, according to Realtor.com. Trulia shows 1,272 homes for sale in Rancho Cucamonga, of which 754 (59%) are in some stage of foreclosure. That means only 518 homes (41%) are not officially distressed sales. RealtyTrac, a company that tracks foreclosure activity says 1,451 properties are in some stage of the foreclosure process: 703 in pre-foreclosure, 252 at auction, 423 bank-owned, and a smattering of others in other foreclosure categories. The RealtyTrac number is likely a harbinger of things to come. There are 52,000 housing units in Rancho Cucamonga, according to the Census Bureau fact finder, thus approximately 2.8% of all homes in Rancho Cucamonga are in some stage of foreclosure right now. Also, according to the Census Bureau median household income is $75,000 and the median home price is $525,000.

Now compare Merced and Rancho Cucamonga with San Jose, heart of the Silicon Valley which is in turn the heart of the technology and information economies. There are some who say prices never go down in the Silicon Valley.

San Jose has 3,100 houses for sale, according to Realtor.com. Trulia shows 4,000 homes for sale of which 2,500 (63%) are in some stage of foreclosure. That means, only 1,500 homes are not officially distressed sales. RealtyTrac says 4,200 properties are in some stage of foreclosure: 2100 are in pre-foreclosure, 820 are up at auction, 1150 are bank owned. San Jose has 310,000 housing units according to the Census Bureau, in which case approximately 1.3% of homes are in some stage in the foreclosure process. Median household income is $89,000 and median home price is $683,000.

I know I’m relying upon web site listings of homes for sale which may not accurately reflect the true situation, but I think it is good enough to show a snapshot in time and the current trend. I’m not an economist but even I can tell this spells trouble. I dare say it is likely to spell trouble for the state as a whole if most every other community is facing numbers.

I wish I had more time to gather more of this information and plug the numbers into a spreadsheet, to research and forecast housing prices for when we’re ready to buy. Without much more, I dare say this is just the beginning. If there is a recession, subsequent lay offs are likely to push the housing market further toward a precipice. In the end, I think prices will return to a level that the average person with an average income in an area will be able to afford the monthly payments for, including San Jose.