Bay Area Sweet Digs

September 12, 2008

Foreclosures: The Numbers Just Keep Increasing

Marketwatch ran a story earlier this week that August foreclosures topped 100,000 across the country and that 2008 will probably see a total of 1 million foreclosures in the United States. That is a staggering figure, impacting homeowners, realtors, mortgage holders, downwarad spiral Foreclosures: The Numbers Just Keep Increasingthe government, and the economy as a whole. It has led to new rules and regulations, government bailouts, and the notion that “anyone” can own a home. This downward spiral has put the kibosh on “flippers,” weeded out shady mortgage brokers and lenders, shown how inept our government can be in dealing with a crisis of this proportion, and has seen builders walk away from partially built developments. While the crisis has brought home prices down, and made them more affordable to many, it has locked a good portion of those out of the market due to the tighter restrictions on lending. Double-edged sword, so to speak.

As I watch the doom and gloom, I often wonder if the end is in sight. I have no crystal ball, but I’d love to hear your opinion on the matter. How low will we go? Will the downhill slide continue or will see some recover/stability in the next 6 months?


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Posted by susan.brady on September 12, 2008 8:56 AM | del.icio.us | Digg

  • MDAccount
    One of the issues is the continued lack of consistency in pricing among sellers. I put in an offer today on a house, knowing a second offer was also being made.

    The seller's agent was "shocked" by my Realtor's offer, though she admitted it was right in line with the second offer, and both offers were a full $100K less than list price. I know I based my offer on the average $/sf in the area, and I just wonder what possible basis the seller's agent had for the out-of-date list price.

    In the hardest hit areas sales are picking up rapidly, but generally at the very lowest end. I think the outlying counties will drift down a bit more, but I think places like Berkeley and Oakland still have a way to go. Last in, last out.
  • Jim
    Hi Susan,

    The end is not in sight. The government cannot
    do much. Lower interest rates cause the dollar
    to fall and price of everything goes up - we
    import not just oil but many, many other goods.
    So, a house might appear more affordable but
    more of the paycheck will go for all other stuff
    leaving less for that mortgage payment.

    Unlike most other items, in most areas homes are
    still valued simply by what someone is willing
    to pay. Not the cost of the structure, or the
    rent it can command. This markup is bound to
    come down if fewer buyers are willing and able
    to buy.

    For a few years, everyone could "afford" to
    buy a big, expensive home because they could
    get a loan they could not afford. That dream
    is over now.

    Jim
  • Michelle
    The low end has already bounced.
  • Hi Susan,

    We are only about a third of the way through this challenge. This started in August of 2005 even though nobody knew it or would admit it. Due to all the factors mentioned by you and Justin, as well as some very knowledgeable people I study, I predict that the recovery will begin in 2013.

    The factors that caused this are bigger than the S&L challenge of the early 80's.

    Regardless, there is always money to be made in up and down markets so my focus is on that because the real estate economy as a whole has a long way to go.

    Mark
  • Justin
    Hi Susan,

    I think that we are still in for more pain to come. While a lot fewer sub prime loans are going to be resetting going forward, option ARM loans are going to begin adjusting in large numbers next April. 60% of the $500 billion worth of option ARM loans were made in California and the percentage of people that will not be able to make their adjusted payment will be much higher than with sub prime borrowers. We can expect a lot more foreclosures, bank failures (Washington Mutual was aggressively pushing the option ARM loans, so I think they will have a lot of trouble with these), etc.

    The government's action this week should help a little since more people should be able to get loans, but the market will continue to be flooded with foreclosed homes for some time. This will hurt some areas more than others (like Pittsburg/Antioch), and a recovery is nowhere in sight. Buyers have plenty of time to wait.
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