California home prices will continue to fall

From MarketWatch.com (hat tip: Calculated Risk):

Investment bank Goldman Sachs is increasingly concerned about the health of California’s real estate market and reckons mortgage giant Countrywide Financial could be harder hit than other lenders because of its big exposure to the state.

There are some scary numbers in this report from Goldman about the health of the California real estate market including:

Mortgage delinquencies jumped 46% in California last year, vs. a 5% increase nationally, Goldman said in a note to clients late Thursday.

Delinquencies on prime and subprime adjustable-rate mortgages in California soared by 78% and 60% respectively, vs. 33% and 24% across the U.S., the bank added, citing recent data from the Mortgage Bankers Association.

These numbers for California homes are astounding when compared to the national averages. Further, California is home to a huge population of subprime loans.

Originations of subprime mortgages, which are offered to poorer borrowers with blemished credit records, could drop 30% to 50% in 2007 and this contraction in the availability of credit will hit California’s real estate market harder than elsewhere, the analysts said.

Ten of the top 12 metropolitan areas for subprime mortgages last year were in California, with Stockton topping the list. More than 40% of home loans in that town, nestled in the state’s central valley east of San Francisco, were subprime in 2006, the analysts noted.

Countrywide faces a huge exposure to this problem as nearly half of its entire lending portfolio consists of home loans to Californians.

Almost half of the company’s $71.8 billion mortgage portfolio and more than a quarter of its home loan servicing business is from California, the Goldman analysts noted.

Then analysts reiterated their sell recommendation on Countrywide stock – some advice that Angelo Mozilo has been heeding lately selling more than $140 million of his personal holdings in the company.

This report is on top of the news that Countrywide is anticipating a decrease of 33% in year-over-year earnings at its earnings call next week.