As we close the book on 2008 it will go down a truly ugly year for real estate, maybe epic-ugly. The sub-prime scandal that triggered a wall-street debacle and froze credit markets worldwide will be one for the history books. The local San Diego market, according to Standard and Poor’s Price-Shiller index ( http://www2.standardandpoors.com/spf/pdf/index/CSHomePrice_Release_123062.pdf ) suffered one of the nation’s highest percentages of price declines in 2008 at over 26%, more than 2% per month.
The losses in value were not evenly spread throughout the market however. Neighborhoods with lots of entry level housing where sub-prime loans were most heavily concentrated took the biggest hit. Coastal areas fared better in general. In the last half of 2008 the percentage of distress sales climbed steadily in neighborhoods higher up on the food chain as the economic damage continued to unfold.
Alt-A loans (stated income with good credit scores) with three and five year adjustment periods coming due are defaulting in large numbers. With few refinance options and payments that can jump dramatically, many of these homeowners are now in distress. This group of borrowers will comprise the next wave of foreclosure activity according to forecasts.
Looking Ahead – 2009 Market will be characterized by distress sales
The new administration will create incentives to encourage loan modifications between distressed homeowners and lenders. And when modifications are not feasible, lenders will be more and more willing to allow ‘short sales’ in which they agree to a reduced loan payoff at close of escrow. The lenders win by not having to take the property back in foreclosure (at an even greater loss), the borrowers win by avoiding a foreclosure on their credit and the country wins by having distress-sale inventory absorbed more quickly.
For a homeowner in distress it can feel like drowning. There is an overwhelming amount of information on-line and on the street: good, bad and ugly (outright scam.) Loan modification? Short Sale? Stop making payments? Continue making payments? Deed-in-lieu of foreclosure? Stay? Move? Foreclose? Negotiate directly with lender? Hire a negotiator? Government bailout? And the landscape of options shifts constantly: different lenders have different policies, IRS rules change, and governmental policies are modified. The menu of options is often confusing, and honest assessment and advice from a trusted source is at a premium.
On the other side, buyers with good credit, income and cash will have excellent opportunities in the coming year. But even buyers will find that navigating this market successfully is very challenging! It is not so easy to buy the 'well-priced plums' in a market filled with dicey short sales, bidding-war bank-owned listings, and a climate of disarray and shifting rules of the game. Bottom line for those planning to buy or sell in 2009: you will need a knowledgeable agent with a broad network, a good reputation in the broker community, and a dedication to your success! (Commercial break: I happen to be one! Contact me for a free consultation at your convenience!)
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