San Diego County Foreclosures Up - Way Up

Foreclosures are way up this year, and these bank owned properties are making their way to the market, creating a glut of inventory. This is happening at the same time first time homebuyers have seen their purchasing power plummet as many loan programs which increased their ability to buy have disappeared. The result is that homes in the entry level price range are depreciating.

Countrywide, which had around 500 REO properties in California at the beginning of 2007, now reports 2468 homes in their inventory, and that number is still increasing. You can see these listings on their website, http://www.countrywide.com/purchase/f_reo.asp.

There is much more to come. The following chart from Credit Suisse shows that the greatest number of sub-prime ARMs will reset this November. Sub-prime mortgages are the grey bars. Reset means that the borrowers will have to start paying the real cost of borrowing money, not the "teaser" payment, causing a doubling or tripling of the loan payment. Many of these borrowers have over extended themselves, cannot afford the real payment, and will be facing foreclosure.

Notice a second wave of green bars, these are the "option arms" which will be resetting starting late 2007 until 2012, with the peak occurring in late 2010. Did you know that Countrywide reported that 75% of their customers are only paying the minimum payment option? So we expect to see plenty of foreclosures for a long time to come.
What does this mean to you? If you are a seller, be aware that these properties are your competition, and the banks WILL sell them. No "maybe we'll keep it" with these guys, they are going to get rid of these houses on the MLS, at auction, whatever it takes. You have to price your house to beat them.

If you are a buyer, you'll be able to buy a house in San Diego for less than you thought you could. It will be a great opportunity for you that shouldn't be missed, as home prices will go up again once this glut is absorbed. And yes, it will be absorbed, as those who left the state come back when they see affordable prices again.

If you are an investor, next year should bring exciting times. Remember those sub-prime loans resetting Novemeber 2007? Well, it takes about 3 months of missed payments before the bank forecloses, and then 4 months to get the property at the trustee sale. So somewhere mid to late 2008 we'll be seeing banks really and truly offering some great deals. Right now they are still fixing up the properties and trying to get top dollar. When the flood comes, they will not be able to fix them, and they will be dumping them at bargain prices. So get your finances in order so you'll be ready to deal!