Subprime Mortgage Crisis……..Explained!

This is the best diagram that I have seen so far explaining the subprime mortgage crisis and the processes the housing market, the financial markets, and the government are going through to respond to the crisis. Diagram courtesy of Wikipedia.

(Note: If diagram is blurry, click on diagram to be taken to source page.)

Subprime Mortgage Crisis

A Second Mortgage Crisis on the Horizon? | 60 Minutes reports

Last week 60 minutes ran an exclusive report on the mortgage crisis and how we may have a second wave of mortgage defaults in 2010 and 2011 from Alt-A loans and option arm resets. In the interview Investment fund manager Whitney Tilson says we may only be half way through the unwinding bursting of the bubble. He claims that the trouble now is that the insanity didn’t end with sub-prime loans. Two other types of exotic mortgages, namely Alt-A and “option arms” are now starting to default and he projects that number to increase significantly over the next 2-3 years.

Watch the video below….

It is very interesting listening to this interview and wondering how accurate his prediction is as there are so many variables that may affect this mortgage mess in the coming years. For instance, how many mortgages will be refinance before the resets? Will lower interest rates stem some of this pain? What will congress do over the next year to stimulate housing? What will the state of the economy be in the next year or two? How about the psychology of the home buyer and whether they think housing is a bargain? etc…..

So much to consider, but one thing is for sure……it will be one wild ride!

Orange County home prices hit 5 1/2 year low

Dataquick’s November stats show Orange County median home price are now at $400K…a 5 1/2 year low and a 34.4% decline year over year. Prices not seen since May of ‘03! Single family OC homes dropped to a median of $420K and condos are now at a median of $260.5K.

On the positive side sales popped up by almost 39%! This was mainly a result of banks dumping foreclosures on the market and bargain hunters and investors swooping in and buying. This was the fifth straight month of home sales increasing on a year-over-year comparison. A good sign! If sales continue to increase this will gradually soak up the inventory as long as foreclosures don’t increase at a more rapid pace than we had in 2008.

If you want specific statistics about your city, please email me at brad@so-cal-dreamhomes.com and tell me what city you would like a report for.

Home owners who modified loans are already in trouble!

A couple weeks ago I commented on whether it was in the best interest of the government and/or the banks to bail out struggling homeowners by modified their loans. I have said in the past that it would prolong the agony of the housing market as many of these home owners still would not be able to honor their loan commitments. Ironically a report out today from banking regulators said that “more than half of all homeowners who had their loans modified to make the payments more affordable in the first half of the year are already in default again”!

This leads me back to what is the best allocation of bailout funds to help the struggling housing market. Should we continue to throw money at the foreclosure problem or should we stimulate the housing market. I contend that by sparking the housing market with stimulus programs we can eliminate future foreclosures by stopping housing price deterioration. Otherwise we just continue to bail out the same people over and over again as home prices continue to fall.

Real estate agents polled on when they think the real estate market will bottom

I recently polled my fellow agents and lenders on BrokerAgentSocial.com about when they think we will reach a bottom in real estate. Here are the results as of 12/04/08:

NOW is the bottom! : 23%

Spring of 2009 : 36%

Winter of 2009 : 16%

Not until 2010 : 16%

Not until 2011..or later : 9%

Yes, almost a full 60% thought we were at or near a bottom and 75% thought we would have reached it on or before the end of 2009! I thought that this was very intriguing that so many Realtors, agents, and loan brokers were that positive on the market going forward. I plan on re-poll these agents in six months to see how much the mindset has changed.

Personally I believe we are still more than a year away from a “broad” bottom, however I do see certain segments of the markets in Orange County that I think are very near the bottom and may begin to stabilize relatively soon. For information on what segments and areas may be bottoming in Orange County or general questions about real estate please contact me via email at brad@so-cal-dreamhomes.com