California Short Sales, Foreclosures, REOs Los Angeles, San Diego, Riverside & Orange County Short-Sales Listings

29 Oct 08 Why California Home Values have Not Hit Bottom

Housing in California is years away from a bottom. Let me make that clear and if you have any doubts, after reading this essay you will have a better understanding as to how I arrived at that conclusion. This article is longer since it will try to answer many of the arguments from those calling for a real estate bottom here in California. After looking at multiple sources of information like income, demographics, sales, psychology, and the economy there is no logical evidence for a housing bottom in California. It is well worth the read and certainly provides more information than a 1 minute sound bite. Recently I have noticed a resurgence of bottom talk coming from professionals in the field but also through e-mail questions.  Short sales, foreclosures and loan modifications have become standard alternatives to home refinancing for California homeowners.

My assessment is this renewed energy has come from two primary culprits. The first is of course the Housing and Economic Recovery Act of 2008 that provides $300 billion in loan refinances and also bails out Fannie Mae and Freddie Mac. In addition, there are many provisions in the bill to juice the market all of which will have very little impact on California. Both Fannie Mae and Freddie Mac announce earnings this week and the news isn’t going to be good. Freddie Mac lost $821 million in the second quarter and announced that they will be slashing their dividend from 25 cents to 5 cents to conserve capital. This wouldn’t be such a big deal except the U.S. taxpayer is now on the hook and a loss for Fannie Mae and Freddie Mac leads us one step closer to a bailout.

The second reason for the upsurge in bottom talk at least for California is the massive price drop we’ve seen this past year. A drop in the median sales price statewide by 38.38% is bound to get the attention of anyone. Yet simply because prices have fallen steeply in one year does not signal that now is a good time to buy. In fact, I will give you 10 solid reasons in this article why we are years away from any bottom in California.

We really are living in a once in a lifetime bubble. It is highly probable that none of us will see a real estate and credit bubble of this size ever again. There will be minor jumps and dips in the future but nothing on this level. I think the best way to conceptualize this extremely large fiasco is to think of someone who is massively in debt. Everyone knows of a friend or family member that spends way beyond his or her means and is usually in major debt. They have nine credit cards, a $700 car payment, a $4,000 mortgage, and yet seem to shuffle debt around like musical chairs. At a certain point, this game ends and some accept the reality and confront the issue head on and others live in denial.

Those that confront the reality sometimes meet with a financial professional or a debt counselor usually with advice to cut up the credit cards and develop a sustainable budget. A prudent plan. If you are serious about correcting negative cash flow situations, you really have to create a budget that takes into account how much money is coming in and going out. In the case of our country, it has gone into debt counseling, was told to cut up the credit cards but is refusing to do so and is actually applying for more credit cards!

What you will not hear from bottom talkers is any mention of incomes from the vast majority of people. Sure they will use random examples of those in Bel Air, Brentwood, Laguna Beach, La Jolla or Newport Beach but that is a tiny fraction of the population. They cannot use income as a measure of support because it will demolish their bottom theory. Let us now move on to the 10 reasons why California is years away from a housing bottom.  Read Complete Real Estate Article


29 Oct 08 Welcome to the California Short Sale Market

The early 1990’s saw quite a few short sales in California.  A recent home sales report from Sacramento and San Diego indicated that short sales transactions were on pace to shatter previous records. Most people would agree that home prices have been inflated for some time.  Is anyone really surprised that California housing bubble bursted?  

Creative financing promoting negative amortization and interest only mortgages certainly did not help matters.  With these risky home loans, homebuyers had more purchase power because $5,000 a month would help buy them a home priced in the million dollar range if they financed with an option ARM.

Greenspan continuously lowered interest rates and this paved the road for the new era of American real estate.  Builders raced the growing housing demand and housing construction exploded. Investors began to speculate in real estate and home values grew and grew, just like the stock market did in the late nineteen ninety’s.

The short sale market increases when the demand to sell home increases, but borrower owes more than their property is worth because the market is declining faster than anticipated.  Thousands of California homeowners are trying to dump their homes because they can no longer afford their mortgage payments.  Welcome to the short sale market in beautiful California.

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