What's with this market?

The Real Estate market has taken a real hit over the past eighteen months. Many financial institutions have either gone out of business or stopped doing what is called "sub-prime" loans.


A "sub-prime" loan is a loan that was made (at a higher interest rate) to a buyer that could not qualify for a conventional, FHA or VA approved loans. Either their income was not verifiable, their income was marginal, they had a less than perfect credit history, or for some other reason they wouldn't qualify.


Too many borrowers took a "Teaser" loan where the interest rate started at a much lower than market level interest rate, and in two to three years would be adjusted upwards, often at a higher than market level to make up for the deficiency in interest paid or have the deficiency added to the end of the loan where you would pay interest on interest. Unfortunately most could only qualify for the teaser rate and planned to sell or refinance before the new interest rate took affect.



Several borrowers also took an "ARM" (Adjustable Rate Mortgage) where they hoped that their income would be increased, they would sell before the increase occurred, or the interest rate and thus their payment would only rise a little bit.


To every one's shock, dismay and frustration none of these things happened. Interest rates went up higher than they hoped, they didn't get a pay raise, the appraised value of their home dropped to less than they paid and even borrowed, or they couldn't sell and are now have a home they cannot afford to make the payments on.


So what to do?


I just attended a California Association or Realtors (CAR) class on Foreclosures and Short Sales. I heard a discussion that was headed by Robert A Kleinhenz, Ph.D., Deputy Chief Economist for CAR. Basically he advised that if you bought your home before 2005 to hold unto it, make your payments and the market will rebound. But if you have to sell, price it to sell.


I'll discuss this and other topics in later postings.


According to most economists we are near the bottom of the market fallout. Though Coalinga was hit fairly hard, it is not as bad as some areas of the San Joaquin Valley. (According to CAR, Sacramento is the worst in the nation.)


Most of economists expect the market to start rebounding, albeit slowly, and by mid to late 2009, the slump to be nearly over. This does not mean it will be back to the pre-2007 levels, but that the housing market should start to see an increase in market value.