Sub-prime loans. From the borrowers perspective.

So here we are beaming along. Home inventory seems to be at recent historical highs, rates are low, prices are down and buyers can get killer deals. It’s like shooting fish in a barrel… Not so fast there pilgrim… Enter the Short Sale.

“So what is a short sale?” I’m frequently asked. No the bank isn’t selling shorts…but they are in a monetary way losing them. A short sale occurs when the borrower can no longer maintain the mortgage and the value of the home is less than what is owed against it. The borrower can avoid foreclosure by finding a buyer who is willing to buy the home for less than what is owed. The lender(s) then agrees to allow the borrower to sell the home for less than what is owed, take a loss and come up “short” for the difference. This is not exactly the type of thing that appears in the business model, but that’s it in a nutshell.

In many areas of my marketplace in North San Diego short sales make up 70% of the active listing inventory. Yet short sales account for only 7% of the total sales. This amazing disparity is evident when you take into consideration that only 20% of short sale listings actually sell. In addition, short sales take 2-6 months to get bank approval and are subject to foreclosure , overbid, rejection, counter offers at a higher price or just getting lost in the shuffle at any time. And the processors at the banks loss mitigation departments could care less because you are just one of hundreds they have to deal with. So what does all this mean in the big picture?

1. A lot of homes currently listed as short sales will soon be Bank Owned.

2. It appears there are a lot more houses for sale than there really are because the vast majority of short sales are unsellable.

3. If you think you are going to buy a home that is a short sale you better not be in love with it. 2-6 months of buyer related stress?

4. Something’s fishy at the bank. They seem so efficient at losing money.

So if you think some of these details are going to put a hitch in your desire to run out buy a short sale just wait until you visit some that are for sale. Families are getting kicked out. They can’t maintain their mortgage so why should they care about the home? As a general rule they don’t. Oh, and why should they care about doing the mountain of paperwork either? To quote a recent home buyer about shopping short sale listings “It’s depressing.”

Will things pick up in North San Diego County Real Estate for the up coming spring season? There are some good indications that we will see some increased activity soon. First, interest rates are still near historic lows. Also, normal sellers have been noticeably absent from the winter market. Many listings are foreclosures or short sales. The average seller is gun shy about having to compete with these give away offerings. Soon pent up demand both to sell and buy will have to give way. Expect some good action soon. That’s my call.

The following information was reported from HomeDex for the month of January 2008.

· The median price for all homes in North San Diego County – single-family
detached and single- family attached – declined to $480,000 in January 2008 from
$485,000 in December 2007.

· The median-priced single-family detached (SFD) home in North San Diego
County decreased 1.14 percent to $562,500 in January 2008 from $569,000 in
December 2007. SFD median prices in Non-North County zip codes decreased
5.86 percent from $450,000 in December 2007 to $423,650 in January 2008.

· Median SFD prices in North San Diego County fell 10 percent from
$625,000 January 2007 to January 2008.

The median price fell 18.05 percent in Non-North County from $516,938 from January 2007 to January 2008.