It’s a classic chicken-and-egg question: are foreclosures a cause or a symptom of the slumping housing market?

One Southern California economist believes they’re clearly a symptom.

“I think there were troubles to start with; that’s what caused the defaults and foreclosures,” said Dr. Michael Carney, Professor of Finance and Real Estate at Cal Poly University in Pomona, Calif., and Director of the Real Estate Research Council of Southern California.

Carney was speaking at the research council’s most recent quarterly luncheon, where foreclosures were the topic of the day. Carney pinpointed the root cause of Southern California’s cooling housing market as a somewhat cryptic slowing of demand for housing in 2006. That slowing of demand had a domino effect, causing home sales to slow and home price appreciation to flatten and even go negative in the first quarter of 2007, according to Carney’s research.

The slowing sales and stagnant home prices have in turn contributed to a sharp rise in defaults and foreclosures. And rising defaults and foreclosures is not typically a one-quarter or even one-year phenomenon in Southern California, noted Carney. His 2007 outlook included foreclosures and defaults as something to watch carefully. Quipping that most economists are lucky to be right once in their lifetime, he acknowledged that investor educator Bruce Norris, who rightly predicted that home prices would double a few years ago, “may be right again” about his prediction of foreclosure rates skyrocketing in the near future.

Of course, foreclosures are caused by a more complex set of factors than just a decrease in demand for housing. That fact was reaffirmed during the luncheon's feature presentation, in which Chris Cagan, Director of Research and Analytics at First American CoreLogic, identified generous lending practices as major culprit behind the recent spate of foreclosures.

"My 11-year-old kid could probably qualify for a loan with his income, his 'stated' income," Cagan joked.