40%/60%.
December 7th, 2008 Categories: Weekly Real Estate Activity In Ventura County
The headlines are shouting this morning that 40% of homeowners (at least in California) who purchased homes over the last five years are upside down.
Which means that 60% of those who purchased within the same time span are upside right.
Why are 40% upside down?
If you lived on a different planet you probably wouldn’t know that the 1990’s Congress(Sen. Dodd and Congressman Frank take a bow) instituted legislation that basically told anyone that could breath ”you can have a house”. And the banks (indirectly I suspect should be the acceptable wording) catered to the wishes of this legislation and today we are witnessing the impact.
Those exotic loans that people were lead into basically represent a good portion of the 40% who are now upside down.
But lending institutions are part of the problem with their desktop (drive-by) appraisals. Lending institutions in the 1990’s gave the store away with exotic loans which the tax payer will have to pay. They were buyer oriented.
Today these same institutions are screwing sellers with their drive-by (desktop) appraisals by unilaterally generating and perpetuating an artificial downside market.
Side bar: Yes. I am still miffed that I lost a real estate transaction because of a drive-by appraisal. Two appraiser valued a property above $ 440,000. One at $ 440,000; another at $ 479,000. The lender a few weeks later says no…..it’s only $ 405,000. Dead deal.
If anyone in the blog world (and I am sure there are many) has had similar experiences let me know and if you would mentioned the real estate area. I have heard of an individual agent who experienced a $ 90,000 decrease in Santa Paula/Fillmore area via a drive by appraisal. I am sensing that lender actions are directed to the more depressed areas with these drive by appraisals. Just my suspicions.
Back to the general topic. Another headliner most read in the papers today are the actions that the Federal Reserve and lenders are taking to help people keep their home. It has been stated that the Reserve wants to get the mortgage interest rate down to 4.5% or lower.
Interest rates should have been 4.5% months ago (if not years ago) but lenders have been keeping interest rates artificially high for years. If oil companies or any other large corporation undertook what lenders have been doing for years, these corporations would be investigated for collusion and all heck would break loose. Not so with financial institutions.
So where is all of this help going? Some to financial institutions, banks, it appears that auto industry will get help, some mortgage help limited to a narrow group of people who are W2 wage earners, have equity in their home and very good FICO scores. But the list for assistance continues to grow.
Those who are self-employed or who are 1099 people are having difficulties getting any kind of a loan. Most of these people have excellent credit, are professional people with good incomes, good FICO scores yet they cannot get reasonable loans because they do not have W2 income. Maybe it is me but there is something wrong with this picture.
Keep in mind another group of folks who are W2 wage earners with good FICO scores, making very good money who cannot get help because their property is upside down. Now that is a group in need of help. I wonder how helpful lenders have been with their drive-by appraisals in these areas?
Most certainly I am glad that some people are getting help. But there are a great many others (the self-employed, other professionals and others) that need help as well and these people are being ignored. Again if you see this happening in your areas let me know.
Overall these actions will create more harm than good in the long run and the impact to real estate on both the National and local level (Ventura County, CA) will suffer significantly.
Ventura County.
It’s the same story as shown in the chart below.
- Listings DOWN.
- Properties Sold-FLAT.
- Days on the market….basically flat.
- Variance between list price and actual average sales price holding at about -5%.
As mentioned in last weeks article everything is being pushed down and like the little box with a spring inside is opened things will break out in an all out frenzy and prices will escalate beyond your imagination. The prices of 2003-2005 period will be exceeded significantly within a short period of time.
Unemployment which has increased substantially over the last several months will act as a temporary brake but once jobs are found and unemployment decreases watch out.
The above chart illustrates the decrease of property values since January, 2008 in Ventura County based on the average actual sales price. Not pretty.
Comments please.
