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By Bob Schwartz, CRS,
GRI ©2005
www.brokerforyou.com All rights reserved.
11/05 - Updated from
original published 12/04
Nothing down, variable interest rate, EZ qualification,
stated income. These are the common lending terms that
many believe have kept our super-heated market going. As
the stories of fast home appreciation proliferate, the
desire to get into our local housing market by those who
hesitated in the past, have escalated.
This is typical of any bull market, be it the stock or
housing market. The paradigm changes this time. There is
a huge increase in zero down and adjustable rate loans
being pushed on poor credit risk borrowers and first
time buyers (below market start/qualifying), as well as
move up buyers being induced to purchase homes that
otherwise are far beyond normal qualifying loan
guidelines!
The majority of the new adjustable loans have
artificially low start rates for the first year or two,
interest only payment terms, and are indexed to volatile
interest rate indexes. This is setting the stage for a
huge decline in home values.
One
San Diego real estate
local major lender recently stated that they had no
fixed rate purchase loans in process; all their new
purchase loans were adjustable! Further, over 50% of
their new purchase loans were zero down! Combine this
with the popular 'stated income' loans and it's easy to
see how these policies have kept our market propped up.
(A stated income loan basically means if the buyer has
good credit, the amount of their stated income is NOT
verified for qualification purposes.)
While a huge housing value decline seems unnatural to
many, this phenomenon was last seen in the
San Diego real estate market
in the mid-90's! At that time, an approximate 20%
housing depreciation took many by surprise. The easy
loan practices today, the double digit housing
appreciation of the past few years, and irrational
enthusiasm, clearly signals another approaching decline
in the
San Diego housing market!
How bad could such a decline be? A number of local
lenders state that the majority of their loans for the
past few years were zero down, adjustable loans. With
the slow but steady rise in interest rates,
San Diego real estate
could be facing a decline in housing values that could
dim the 20% decline of the mid-90's!
By any measure, our local
San Diego real estate market
is more at risk than any time in recent memory.
Though housing bubbles may last far beyond anyone's
expectations, now may well be a time to reconsider any
new purchase. Purchasing one's first home is not
something one should try to time or tie into projections
on the local housing trend. Just be cautious! Stay well
within your normal qualification ratios. Except under
certain conditions, avoid E/Z qualification and
adjustable, zero down loans. Start out modestly with a
smaller home or condominium that you can easily afford.
No one can predict the future trend of any major market
with certainty. However, caution is advised in
San Diego housing as
the multitude sing the siren song of never ending double
digit housing appreciation.
ABOUT THE AUTHOR Bob Schwartz, is a Certified Residential
Specialist, CA licensed real estate broker with
www.Brokerforyou.com. Bob has over 27 years of
residential real estate experience, authored a number of
published articles and served as an expert witness for
San Diego lawyers.
You can contact Bob via e-mail at bob@brokerforyou.com
or visit his highly popular
San Diego real estate website
at:
http://www.brokerforyou.com
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