By: Bob Schwartz, San Diego Real Estate Broker CRS, GRI �2006 Broker For You All rights reserved.
Nothing down, variable interest rate, EZ qualification, stated income.
These are the common lending terms that many believe have kept our super-heated
market going. As the stories of fast home appreciation proliferate, the desire
to get into our local housing market by those who hesitated in the past, have
escalated.
This is typical of any bull market, be it the stock or housing market. The
paradigm changes this time. There is a huge increase in zero down and adjustable
rate loans being pushed on poor credit risk borrowers and first time buyers
(below market start/qualifying), as well as move up buyers being induced to
purchase homes that otherwise are far beyond normal qualifying loan guidelines!
The majority of the new adjustable loans have artificially low start rates for
the first year or two, interest only payment terms, and are indexed to volatile
interest rate indexes. This is setting the stage for a huge decline in home
values.
One local major lender recently stated that they had no fixed rate purchase
loans in process; all their new purchase loans were adjustable! Further, over
50% of their new purchase loans were zero down! Combine this with the popular
'stated income' loans and it's easy to see how these policies have kept our
market propped up. (A stated income loan basically means if the buyer has good
credit, the amount of their stated income is NOT verified for qualification
purposes.)
While a huge housing value decline seems unnatural to many, this phenomenon was
last seen locally in the mid-90's! At that time, an approximate 20% housing
depreciation took many by surprise. The easy loan practices today, the double
digit housing appreciation of the past few years, and irrational enthusiasm,
clearly signals another approaching decline in the San Diego housing market!
How bad could such a decline be? A number of local lenders state that the
majority of their loans for the past few years were zero down, adjustable loans.
With the slow but steady rise in interest rates,
San Diego real estate could be facing a decline
in housing values that could dim the 20% decline of the mid-90's!
By any measure, our local
San Diego real estate market is more at risk
than any time in recent memory.
Though housing bubbles may last far beyond anyone's expectations, now may well
be a time to reconsider any new purchase. Purchasing one's first home is not
something one should try to time or tie into projections on the local housing
trend. Just be cautious! Stay well within your normal qualification ratios.
Except under certain conditions, avoid E/Z qualification and adjustable, zero
down loans. Start out modestly with a smaller home or condominium that you can
easily afford.
No one can predict the future trend of any major market with certainty. However,
caution is advised in
San Diego housing as the multitude sing the
siren song of never ending double digit housing appreciation.
ABOUT THE AUTHOR
Bob Schwartz, is a Certified Residential Specialist, CA licensed real estate
broker with www.Brokerforyou.com. Bob
has over 27 years of residential real estate experience, authored a number of
published articles and served as an expert witness for
San Diego legal firms. You can contact Bob via
e-mail at brokerforyou@gmail.com or visit his highly popular
San Diego real estate website at:
http://www.brokerforyou.com
This work is protected under copyright and may not be published in other works without express written permission