Underwater with your mortgage?

If you owe more on your home than you can recover from the sale of your home minus the cost of selling, what should you do?

First of all, there are many people in the same situation and largely this is not the fault of the homebuyer.  Market price declines have been historically large and predicting this outcome was difficult.

Although many indicators of problems were available, the market ignored the very same problems for a long time while home prices soared.  So don’t blame yourself for bad judgment.

And if you are an investor and bought properties with the hope of flipping for a profit, it can be an important lesson that market forces can change rapidly and it’s important to be nimble with your investments, and sometimes prudent to get out with a small loss instead of riding a price decline to the bottom.

Anyway, if you are underwater, the best thing you can do is to educate yourself about the options.  You do have options.  Before you slide into delinquency or all the way to foreclosure, get some advice.

It’s easy to get paralyzed by fear and wait and wait, unable to move forward.  But the longer you wait, the less effective some of your options will be, so you are actually making things worse.

The right course of action will be different for each individual due to their own unique set of circumstances.

Give me a call if you need help sorting out your next step.

Phil McCollum
BRC Realty Group
562-225-5234

California mortgage default rate hits 15%

In contrast to recent claims that the recession is over and home prices have stabilized, the California mortgage default rate is still increasing.  In the most recent report, the rate was 15.2% which is the highest since 1972 and higher than the national level which is currently 13%.

What’s driving all these homeowners into delinquency?

The real estate market is continuing to unwind.  At first it was high risk borrowers, those who took on adjustable mortgages and bought with little or no down payment.  Then with unemployment soaring, another wave of defaults came from families dealing with lost jobs and lost income.  The problem has progressed to the point that highly credit worthy borrowers with good credit and conventional home loans are getting squeezed into default.

As more and more foreclosures flood the market from adjustable rate mortgages resetting and job loss financial distress, prices will continue to have a limited upside potential.

To read more about the California real estate mortgage default rate situation, refer to this LA Times article:

Mortgage Defaults Soar to Record 13%

In a report just issues by the California Association of Realtors, a chart was included that shows the percentage of total home sales that were distressed sales.  The percent is staggering, being higher than 80% in some counties.  With levels this high, there’s still a glimmer of good news in that the percentages of distressed sales are slightly lower than reported in March.

Distressed Home Sales as Percentage of Total Home Sales

Real Estate Prices Have Hit Bottom as Sales Increase. Is That Right?

There are definite positive signs that real estate prices have hit bottom.  But could it be an illusion?  There are some positives.  Prices are a lot lower than they used to be, and interest rates are still low.  The combination means that homes are more affordable than they’ve been in many years.

And my answer to that is…

Just because prices are lower does not mean they can’t go lower still.  Real estate prices are driven upward by trend following speculators who want an easy profit, and they are driven down by fundamentals.  Families all across America are struggling, cutting back on expense, and have fear of job loss, or income reductions that come from cut hours or underemployment.  Until there are more positives, it’s hard for me to imagine a trend of increasing real estate prices.

In the short term, I do see some gains possible.  This is due to some real estate bottom fishers, the speculators who think they can pick up houses cheap right now.  And we are in the midst of the summer selling season for real estate, and that helps give a positive impression.

I want you to read the article linked below to expand your understanding of this subject.

4 Signs Your Home is About to Lose Value

Real estate prices have been in decline for years.  And we’ve been in an economic recession since December 2007.  Now that the economy has gotten really bad and real estate prices have tumbled to levels unthinkable  a few years ago, the  talk turns to recovery, and housing bargains.

Let me use the stock market as an example that can be applied to real estate prices.  If you remember back in November 2008, the Dow Jones had dropped to around 7500.  And then it staged a recovery, all the way back up to 9000 in January 2009.  But that was not the end of the story.  As you are aware if you watch the news, the Dow Jones has tumbled once again and is now around 6500.

Can a similar thing happen to real estate prices?

Real estate prices have dropped on a nationwide basis by about 19% last year.  Regionally, the damage was much worse.  In bubble states like California and Flordia, some areas are suffering through declines of over 50%.  With prices having fallen so far, and foreclosures becoming a large component of housing sales, many people look at today’s prices as bargains.

Throw in low interest rates and it looks even better.  But wait a minute…

The government is trying to force interest rates to artifically low levels.  Why?  They need people to buy houses to prevent further price drops.

When the spring and summer buying season arrives, many prospective buyers will step up and start looking for homes, assuming that the prices represent bargains.  Combined with historically low rates, these deals will be tempting and could spur demand and cause a bump in prices.  This is where I want to compare to the stock market.

Just because prices bump up (if they do at all) does not mean the price bottom has been reached.  Many analysis feel that prices must still drop another 20%.  There is a potential avalanche of foreclosures still looming as property values decline and homeowners come under pressure from cut-backs in their work hours or salaries, job loss, and resets on their mortgages.

In Long Beach California and all across the South Bay area, there are pockets where home prices have been slashed and other areas where the decline has been much less severe.  I foresee more trouble ahead for the economy and think that housing prices are still on the verge of another step down.