The Bakersfield Californian has a front page news story on the lending mess. The following are a few items of note in the story:
(1) They claim that 6.5% of all loans in Bakersfield were from subprime. However, per Loan Performance our market was 36% subprime in 2006. Their report tracks 2006 estimates for average loan size by market and subprime's share of all purchase lending dollars in these markets.
(2) After her client lost out on their loan, New Century was going to be their lender, but cancelled. I wonder why?
Their realtor claimed "They had their heart set (on) becoming homeowners," she said. "... Now they've somewhat lost faith in the system."
I disagree! These people had bad credit and no money to put down on a loan. They should not even be trying to buy a home. They will end up in foreclosure and the only winners will be the commissioned Realtors and mortgage brokers.
(3) The reporter claims "Some two dozen companies specializing in subprime mortgages have gone belly up".
Actually, per the official lender implosion website we are now at 41 lenders belly up.
(4)"Notices of default up sixfold from a year ago". Agree!
(5) Gary Crabtree now claims "the number of sales per month could decline by 25 percent or 30 percent because of factors including the difficulty of getting a subprime loan." That is a dramatic number and differs from what Gary has said in the past. Last we heard from Gary all was well? But local appraiser Gary Crabtree said the local market is not all that bad. "The market is reasonably stable," .
At least they did not interview CAR representative, Robert Kleinhenz, the association's deputy chief economist. Last time they spoke with this cheerleader, er... economist he said, "he expects Bakersfield's median house price to remain flat or possibly increase slightly next year. The area has strong job and population growth, Kleinhenz said, and "that's going to support a market that's a little bit more buoyant." "The drop-off in sales in Bakersfield is not quite as severe," Kleinhenz said.
(6) "St. Clair, the broker at St. Clair Realty, foresees only a temporary slowdown in the local home market as a result of the new subprime restrictions. "It's the entry-level homes that are going to get hit hardest," he said."
All levels of the market have been hit hard. I am seeing NOD's in our higher end neighborhoods as well. No level of home will be spared in this mess.
(7) "In January, 274 existing homes sold in the Bakersfield market, down 24 percent from a year before, according to a recent report by Crabtree."
We presently have 3,544 homes on the MLS. At this pace we have nearly 13 months worth of inventory. Also, the pace of inventory growth has accelerated dramatically in the last few months.
How can we return to a "normal market" per Glenn Porter, when our inventory is exploding, demand is down significantly and credit is tightening?
Sunday, March 18, 2007
Loan crisis hits home
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The pundits are trying to spin this as hurting only the sub-prime loans, when you're right: having a good credit score is no guarantee that you won't get rate shock when that ARM hits the buyer where it hurts. It'll take some time, though, as some of these ticking time-bombs won't kick in later this year or next year (up to 5 years, with the prime ARMs).
The really interesting stats for sales, though, won't be seen until we see what happens to sales as a result of the Wall Street sub-prime collapse last week.
These results won't show up in the statistics for a few months, but there's tons of anecdotal accounts of potential top-of-the-bubble buyers who don't realize what a blessing in disguise it was that the system collapsed under it's own weight, only moments before they were about to get underneath the bottom of the collapsing pyramid.
How can they say that it will mostly effect the low end housing market?
My wife and I are looking to move up when the dust settles, but guess what? Somebody is going to have to QUALIFY to buy our "starter" house first. We already know that our asking price will be way off the high we experienced. No problem, we will reduce to sell when the time comes, but the higher end house will also need to reduce or we won't be able to buy.
It's a chain reaction, starting at the lowest end. Very few people are going to be buying a luxury home as their first purchase. They rely partly on equity in their current home, especially in an inflated market. When the market deflates, it will deflate across the board.
(1) They claim that 6.5% of all loans in Bakersfield were from subprime. However, per Loan Performance our market was 36% subprime in 2006.
Let's do the math. the average loan is 7-8 years old. If 36% of last years' were sub-prime then those alone account for 3.5%- 4% of all loans. It don't add up.
Robert-
I read the report as 6.5% of all new loans in 2006. The other report was also # of loans in 2006 (36.5%).
I am not sure which one is correct. However, I think the 6.5% of all loans made in 2006 as subprime was too low. Especially for this market.
"The really interesting stats for sales, though, won't be seen until we see what happens to sales as a result of the Wall Street sub-prime collapse last week."
I think this spring was going to be a bust anyway (yes I know Mr. Cote called this many months back - LOL), now with loans falling out and credit tightening. I would bet the sales volumes will drop significantly.
All those feeding off the transaction better stock up on Top Ramen.
All those feeding off the transaction better stock up on Top Ramen.
Yeah, and you can have a choice on how you eat that crap with or without that little packet of dirt.
Me I am going to eat a steak tonight.
Even though fully financed loans are harder to get, they can still be found. But gone are the days when marginally qualified borrowers could qualify for a loan with no money down, Porter said.
"It just has to be more documentable," he said. "It has to be people who qualify."
What a strange thing that 100% LTV was and still is allowed for anyone, much less subprime. Here ya go, 100s of thousands of dollars to gamble, with no equity, keep the gains and the government will cover your losses!
The article says "The couple's realtor, Diana Williams of Touchstone Real Estate Group, said they should not have qualified for the loan in the first place. Instead, they should have been counseled to shore up their finances before attempting to buy." - uh, excuse me, but isn't the real estate agent supposed to do some of that "counseling"?
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