The Window of Opportunity for San Diego Homebuyers Quickly Disappearing.

San Diego is one of the hardest hit markets during the sub-prime meltdown, resulting in a large number of foreclosed properties.  The consumers purchasing these homes in many instances have received up to a 30 percent discount from the peak of the market in 2004.  With the high cost of housing in San Diego the sub-prime loan with stated income was commonly used to buy homes with 100% financing.  By stating their income the buyer didn't have to validate their income with pay-stubs and W-2s many of these consumers elected to take riskier two or three year adjustable rate mortgages for the lower initial payment, with hopes of refinancing before the time of the adjustment.  These sub-prime borrowers found themselves unable to refinance and trapped with declining market values and the disappearance of almost all of the sub-prime loan products.  Most of the borrowers were advised by the media to ask their banks to extend out their notes with the same rate until the market conditions improved and they could refinance.  As is evident by the number of foreclosed homes, very few homeowners were successful in renegotiating the terms of their loan.  In many cases the homeowner was faced with a payment increase of up to $1000 a month which left only one option, walking away from their home.

Article after article has been written describing the record number of foreclosures and further declines in value that will be taking place in 2008.  These numbers have all been based on one fact.  President Bush felt that the sub-prime mortgage problem was an individual homeowner’s problem and that the federal government was not there to bail them out.  After realizing the sub-prime meltdown has shaken financial markets throughout the world government intervention was needed. With President Bush's new plan in place, it will allow the borrower to fix their initial interest rate for a five-year term as long as the consumer is current on their mortgage.  An evaluation will be done to determine a borrower’s ability to handle the higher payment if their loan adjusts.  I suspect that most homeowners will qualify for the freeze of their interest-rate.  In San Diego estimates show over 10,000 homeowners could be saved from foreclosure in 2008 and allowed to keep their homes.

After the existing inventory of foreclosures disappears the consumers that are waiting for the bottom of the market will be in for a big surprise.  Already local agents are experiencing multiple offer situations on the bank owned properties that are offered for the best prices.  In many cases the sales prices on these properties are going above the initial prices they were listed at.  A combination of declining prices and 100% financing readily available to consumers through FNMA at conforming loan limits of up to $417,000 is creating a buyer's paradise.  Additionally appraisers are starting to see values leveling off throughout Southern California.  It is looking like this window of opportunity to purchase a bank owned a home will be short-lived.

Unfortunately for many consumers fear will drive them to sit on the sidelines of the market until the media starts to report that we have a recovering market.  A recovering market for the consumer means higher prices, the loss of many seller concessions like having their closing costs paid, many competing homebuyers, and a lower level of inventory available.  With the federal government lowering the discount rate and mortgages that are below 6%, now is the window of opportunity to buy a below-market home.  When the news about the market is at its worst the opportunity for profit is at its best, but not for long.