Saturday, November 26, 2005

San Diego Braces For Defaults

The North County Times reports on the prospects for defaults in that hot market. "Homeowners, particularly first-time homebuyers in suburban markets such as Southwest County, always face a certain amount of financial distress, John Karevoll said. That's particularly true now, with adjustable-rate mortgage payments rising faster than salaries. The median monthly payment in October was $2,169, up 20 percent from October 2004."

"Banks and other lenders sent 1,266 notices of default to Riverside County borrowers in the third quarter, a move that gives homeowners 90 days to catch up on payments before moving towards an auction. That number is up from 1,121 in the second quarter and 1,116 notices in the third quarter of 2004."

"Still, skyrocketing home values through much of 2003 and 2004 allowed borrowers to avoid default. But with appreciation tapering off, more borrowers are hanging on until the bitter end, hoping to bring loans current."

"Because of the weeks-long periods between the stages of foreclosure, borrowers' financial distress doesn't show up immediately. Karevoll said the slight rise in default notices in the third quarter reflects difficulty in the first three months of the year, when home prices were rising at annual rates of 15 to 30 percent."

"Local real-estate agencies are preparing for clients in such difficult straits, however. Century 21 Wright, for example, recently offered its agents an hour-long seminar on short sales, or sales for less than the outstanding value of the mortgage."

"If the market does weaken, inland buyers may be the first to take it on the chin. First-time buyers in outer suburbs are more likely to go into default or even foreclosure, Karevoll said. They also tend to use more non-traditional loans with lower down payments or that require only interest to be paid off for the first year or two."

"'If you have 20 percent of your property at stake, you'll be much less likely to let it go into foreclosure than if 5 percent is at stake,' Karevoll said."


At 12:08 PM, Blogger SLO renter said...

When the NAR started issuing warnings about exotic mortgages a couple of months ago, one of the local papers ran a story on this topic, with local real estate experts denying that this would be a problem in San Luis Obispo county, because the buyers here are better educated and wealthier than those elsewhere. But as "goleta" has posted on the houseingbubble2, many recent purchasers here have little in the way of assets. I don't expect foreclosures here at the same rate as in other areas of California, but I do think that we will have them, especially in the outlying areas of the county that have traditionally been much more affordable.


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