SUB-PRIME MELTDOWN Financing for buyer’s with so-so …



WHAT DOES ALL NEGATIVE NEWS HEADLINES MEAN FOR REAL ESTATE?

By Ray Millman

SUB-PRIME MELTDOWN Financing for buyer’s with so-so credit, low or no down payments and qualifying on artificial low qualifying start rates have been severely restricted or eliminated. Many of these loans made in 2005 and 2006 have gone in default.

FORECLOSURES EXPLOSION In the outlying areas like San Bernadino, Riverside and the desert areas foreclosures have skyrocketed hurting the market there. In the South Bay areas like Inglewood and Carson have seen a rise in foreclosures. The big question is whether this problem will expand into the heart of the Torrance. Foreclosures are where a buyer stops making their payments and the lender repossess the home through legal action.

SHORT SALES Are where a home owner who is selling their home owes more than the property is worth including closing costs. So they ask the lender to accept less than what is owed in order to complete a sale and often avoid a foreclosure which the lender does not want. The lender can accept or reject any contract and usually takes a few weeks to respond. The lender also issues the seller a 1099 on any amount discounted.

BANK OWNED PROPERTIES Is where the lender has completed a foreclosure and is now selling the home on the open market using a Realtor to represent them. They are usually sold “as is” and compete with regular sellers trying to sell their home.

JUMBO LOAN SPREAD Because the lenders are very nervous right now about the market and their liquidity, they have raised the premium they charge for jumbo loans (loans over $417,00) versus conforming loans from .25% to almost 1% in the last 3 weeks. In Torrance most loans are jumbo loans so this hurts a buyer’s ability to qualify.

BOTTOM LINE Torrance real estate is still a good long term investment. In the short run many buyers have been eliminated by the sub-prime meltdown and now cannot purchase a home, particularly first time buyers. Foreclosures are a hard experience for anyone and are starting to creep into the Torrance market place but not on a problem level. Short sales are fairly common and will expand but are a grueling process to go through and are often denied by the bank. If foreclosures increase this puts more inventory on the market which in not good for anyone, the banks included. The current jumbo loan spread is a real problem pushing the rate over the important psychological 7% barrier and making it more difficult to qualify for homes loans even for A+ buyers. So when you add all this up the Torrance real estate market is likely to slow down further but not fall off a cliff as many doomsayers are predicting. However if you want to sell a home today you need a full time professional agent with a lot of experience in slower markets. The best home in terms of price and condition plus effective marketing will get SOLD while the other homes in the neighborhood just sit on the market hoping for a buyer who is no longer there.

This article was written by Ray Millman of Keller Williams Realty who has 26 years full time experience and can be reached at 310.375.1069.

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