Realtor Jim Klinge predicts that superior properties will fall only 10%, while the inferior properties fall 40-50%, for a median fall of 33%. See his write-up here. Good write-up, and I had a great rebuttal, based on the number of resetting option ARMs in San Diego (100,000 – 300,000), and an estimated MLS listing of 50,000 – 80,000. This is based on the estimate that half of option ARM holders will default. John Dugan, Comptroller of the OCC, is concerned about I/O loans, but *very* concerned about the most risky loan of all: Option ARMs. He explained that a resetting Option ARM payment increases 50%; if the interest rate rises from 6% to 8% on the loan, then the payment *doubles*! How many people can handle a doubling of their mortgage? My estimate is that at least half of option ARM borrowers will go under. My post was so bearish, he completely erased my post. Even a bearish realtor can only take so much bear; the thought of superior properties falling 35-50% is scary to a lot of people, so they don’t even want to hear it. However, it is where I believe we are headed, simply because of the crazy loans that people took.
The only way that the superior neighborhoods would be safe from 35-50% drops, is if nobody over there took out a resetting loan, if they all keep their jobs, i.e. they can all ride out this bust cycle. I guess it’s possible. But not realistic.
We’ve had Mr. Lexus Dealer in DelMar pull out equity just as much as Mr. JoeSixPack in south Poway. NODs and forclosures are all over the nice areas of Carlsbad too, and we haven’t even got in to the bad years yet. The next 2 years are the worst year in the housing bust cycles. The first 2 years are the easiest, as most sellers can easily sell.
