Real estate in San Diego has seen an increase in values over the last 6 months. But we are going to need to see many more months of improvement for everyone to start feeling more confident about the market.
Many homeowners are underwater in San Diego. It may not be as bad as some areas of the country but according to Zillow approximately 20% of San Diego homes are underwater. Other markets as close as Riverside have as many as 50% of homes underwater according to the statistics of Zillow.
Most people including myself feel that we won’t see home values improve until 1 of 2 or perhaps both things happen.
#1. Unemployment. Self explanatory, more jobs makes everyone’s life easier. This is not difficult to understand.
#2. Remove all of the bad sub-prime loans from the real estate market. A while back I wrote an article about The Last One Out of the Mortgage Business, Please Turn Off the Lights which talked about Ameriquest Mortgage. You remember them? I’m sure you do. They sponsored the Super Bowl halftime show and just about everything else. They were printing their own money. Taking advantage of clients and later accused of predatory lending.
In my old post about Ameriquest turning off the lights, they closed their doors on August 31, 2007. This would have been the last time any new sub-prime loans could have been funded. About 90% of all Ameriuquests loan products were 2 or 3 year fixed loans. They would offer you a 2 year fixed rate loan with a 28 year adjustable period or a 3 year fixed rate loan with a 27 year adjustable period. After the 2 or 3 year fixed rate period, the mortgage payment would then adjust every 6 months. These 6 month adjustments made the loan almost impossible to afford.
Until these loans work themselves out of the system things will not improve.
My estimate when I wrote the Turn Off the Lights post was the last of the 2 year fixed rate loans would be finished with their fixed mortgage payments by September of 2009 and the 3 year fixed rate loans would be finished with the fixed mortgage payment by September of 2010.
Add in a few mortgage moratoriums, California’s own foreclosure moratorium, lenders claiming they are trying to perform mortgage modifications with homeowners and all of the misc tactics that you can think of to delay a foreclosure and you can easily tack on another 12-24 months of time to get all of these bad loans out of the market.
My estimate is that we will start to see slow, steady improvements through 2010 and most of 2011 with the majority of these sub-prime loans out of the system by late 2011 and some lingering on into 2012.
The other important factor is the availability of credit. Lenders have historically low rates right now but many people have zero equity or can’t qualify for a new loan to purchase because the new lender guidelines are so strict. We will have to see lenders loosen up their guidelines.
I am only trying to be realistic and let you know where I think the real estate market is heading in San Diego. We are going to see a lot of people considering a short sale and many letting their home go to foreclosure. I do believe we have gotten past the worst part but we still have a little fog ahead in the road.
If your considering walking away from your home in San Diego you may have some options. Call or email us for a confidential consultation. You may want to consider the options of short selling your home in San Diego.
Please leave a comment below if you have a story about being underwater on your home, underwater homes in San Diego.