I agree with lbc; patience, grasshopper.

I disagree. The reason the subprime problems have started in those areas is because those are the weakest borrowers relative to the amounts they’ve borrowed. When subprime gets turned off the middle can move down in their expectations; the bottom has nowhere in the market to go but out.

There are just about as many NINJA deals floating around in the North County area as anywhere else. Right now, I’d say the only areas that are not as significantly effected by subprimes are the upper price ranges. However, all these market segments are ultimately connected, and what happens on the bottom will eventually make itself felt – albeit to a lesser degree – at the top.

Witness the pricing trends. When the market started to turn it was spotty and inconsistent. As the cycle has progressed that trend has spread to pretty much everywhere. Even the number of ultra-lux homes being sold has dropped off a cliff.

The effects of the subprime loans extended far beyond just the borrowers who used them on the way up; I see no reason why that would change on the way down.

I don’t think that it is “desirability” that makes a neighborhood a leading indicator. Instead, I think that it is the amount of mortgage activity in that neighborhood over the last 6-7 years. For the most part, this should reflect how “new” the housing is.

Look at it this way:

El Cajon: over the last 7 year, say 10% of the houses change hands/are used as ATM’s. At a 1% default rate, one home in 1000 enters the “must sell” inventory.

Chula Vista: over the last 7 years, say 80% of the houses change hands/are used as ATM’s. Even at the same default rate, eight homes in 1000 enter the “must sell” inventory.

Prices are going to be pushed down sooner in the newer neighborhoods like Chula Vista than the “less desirable” neighborhoods like El Cajon.

The neighborhoods that you think of as more desirable (La Jolla, Del Mar, etc) are just more developed and have a larger percentage of owners who don’t need to sell. However, I would expect the same to be other older neighborhoods, like Clairemont.

Does the sub-prime mess really matter in San Diego? This whole bubble mess is just getting started. What the sub-prime resets don’t do to more desirable areas the Alt-A and ARMs that Prime borrowers took out to ATM their house for toys will start nicking away at the market soon enough.

” … they don’t have an ARM…they have a 30 year fixed”

ARMs were used by people at all levels of incomes and credit scores. A quote from Business Week:

” Stories like these can be found across the socioeconomic spectrum, says Allen J. Fishbein, director of Housing & Credit Policy for the Consumer Federation of America. In a May focus group, the CFA found that option ARM customers at all income levels said the loans were the only way they could afford their homes. While many recognized that their mortgages could increase, “they professed complete surprise that they could increase as much as they could,” says Fishbein. That lack of diligence will cost them over time”

23109VC, you didn’t know this ? Where have you been ? 🙂

If you want to read the entire article:

http://www.businessweek.com/magazine/content/06_37/b4000001.htm

re: smarter owners in more desirable areas

At some point, NOT walking away from your mortgage is stupid. Suppose you buy a condo in Del Mar or La Jolla for 500k$ w/ 5% down and an interest-only loan. With California foreclosure laws, you can look at this like a put option with a 475k$ strike. If the price of the units in the building drops to say, 400k$, you have two options:

1) Keep paying on your I/O mortgage on the full 475k$ amount of your loan.

2) Let the lender foreclose your unit and sell it for 400k$. You realize 75k$ in debt-forgiveness income (25k$ in taxes) and have your credit rating ruined. Once the smoke has cleared (or using a related party, or if you have enough bank to pay cash), you buy the unit nextdoor for 400k$.

If the damage to your credit rating is worth less than 50k$, option 2) is the better choice.

we don't have job losses in so cal like we did in the late 80s….

Not yet at least.   BTW, I think we have just seen the tip of the iceberg when it comes to walking away from a mortgage.  They will do it in masses as this unfolds.