From Mid 2007
Last year, I wrote to you concerning the slew of foreclosures and short sales that were coming our way. I can’t speak about all of California but I watch what’s occurring in our local market. No doubt, you’ve seen the headlines that included the words, “Sub Prime Loans”. Much ado is being made about the irresponsibility of underwriting those loans and the lenders that peddled them to unsuspecting borrowers. Unfortunately, Sacramento has been listed as the #1 area for Sub Prime loan origination. In 1995, the greater Sacramento area gained “honors” as the #2 “Short Sale” market in California. It appears likely that we’ll return to that lofty level again.
The Reader’s Digest version of how we got here is that after several years of home price increases, lenders starting offering a greater range of mortgage products. People that were desperate to buy a home or speculators that wanted to “flip” houses started using the creative loan products that used to be a small percent of the mortgage market. Some lenders acted like predators on the scent of prey. The Sub Prime and Alternative loan programs ballooned and once the housing expansion was over, many of the borrowers couldn’t handle the mortgages. Lenders and consumers share the blame in this as well as Wall Street investment bankers that bought the loans and resold them. Today, we see daily increases in listings of homes for sale that are a “Short Sale” or Foreclosure sale.
Unfortunately, we haven’t seen the end. The people that took out 1% payment mortgages have been paying less that the interest costs. Their loan balances go up every month. Their true rate of interest is close to 8%. Many of them will get notices that they have to start paying principal and interest where their payments will jump 500% or more! Many of them will not be able to handle the increase. The $64,000 question is whether people will do what it takes to save their home and equity or give it back to the lender. That will cause more homes to come on the market which will put downward pressure on prices. If you know someone that took out one of these loans, please ask them to give me a call to see if we can help them secure better loan terms.
One a more positive note, I’ve been pleasantly surprised by some strength in the resale market in the last few months. It was reported that in the 1st quarter of 2007 there was a 10% increase in home sales vs. 1st quarter of 2006. Sellers that offered their homes at a competitive level have received multiple offers at full asking price. I think that Fair Oaks, Land Park, Midtown, Granite Bay, and a few other areas have hit bottom and the prices have stabilized. Areas where there has been a lot of new construction are continuing to see home price declines. If you’re looking to buy a house for an investment, it’s likely that you’ll find better deals 6 months from now. If you’re considering selling your home to buy another home, don’t try and time your decision based upon what happens to real estate prices.
