Will Carless at voiceofsandiego.org wrote a piece yesterday on San Diego’s rising foreclosure rate. That’s certainly an ominous sign, as a surge of "must-sell" inventory is the most likely catalyst to drive prices substantially lower at some point. But foreclosures are rising off their "everyone has a huge equity cushion"-lows and are still fairly contained, from a historical perspective. So while the directional growth trend is bad news, the amount of foreclosures is not as of yet a big problem.
What’s more distressing about Will’s article is the data he dug up on the widespread use of interest-only and negative-amortization loans: in 2005, about 27% of loans were neg-ams. A further 43% of loans were interest-only. These borrowers will at some point be forced to start paying down of principal and, in the case of neg-am borrowers, unpaid interest.
That’s a total of 70% of 2005 borrowers (and, as this chart shows, 58% of 2004 borrowers) who are speculating that either their incomes or their home equity will rise faster than the increases in their mortgage payments. Given San Diego’s modest income growth and flat home prices, it is unclear how many of them will win that bet.
May 9, 2006 @ 11:31 AM
What do you recommend for
What do you recommend for first-time homebuyers such as myself in light of the foreclosure information Will mentioned? Is it recommended to get a realtor and ask them to look out only for foreclosures? I remember speaking to a couple realtors a few years back and telling them that I only wanted to look at foreclosures. It seemed like they were trying to talk me out of it. Then again I don’t think there were too many to go around. What are realtor’s general attitudes toward foreclosures? Is it like the salesman who doesn’t like selling clearance items because there is not as much money in it? Can I expect realtors to try to increase their profit margin by trying to upsell me?
Or is it better to do research on my own? Where are some good places to research to get info on foreclosures before they actually foreclose…sort of like a heads-up? Sorry for the rookie questions, but I think supplying a few basic steps for those of us on the outside can really help.
May 9, 2006 @ 4:43 PM
I think what you are looking
I think what you are looking for is VA forclosures. There aren’t any right now, thats why I’m not selling real estate. The VA has a very good plan. You bid on the houses in forclosure (its an auction high bid wins) and they will even finance them. Most realtors don’t really know that market, but if you win the bid as a realtor, you get the full 6% commission. Some of the VA condo repos that I was selling to investors for $40,000 are now selling for $220,000 800 sq ft go figure.
May 9, 2006 @ 6:28 PM
Rich, do you have the data
Rich, do you have the data to further refine that chart by adding %fixed vs %var loans?