These sad and shocking statistics came out today about Bay Area home prices, further tarnishing what was once some of the most coveted (and most expensive) real estate in the country: The median price for a home in the Bay Area has plunged an astounding 44.4% from November 2007 to November 2008.
Also shocking: 47.6% of Bay Area homes that sold in November had been in foreclosure at one point during the previous 12 months.
And the last statistic, not that shocking because I am, after all, in the mortgage business: 20.6% of loans were FHA loans. Last year in November that figure was less than 1%.
And then there was the good news...a little light shining at the end of this long dark tunnel?
Rates have dropped. Significantly.
They are at a 37 year LOW. I locked my very first loan EVER that started with a "4", as in 4.75% (also shocking..to me, anyway) In late November the Federal Reserve moved to purchase as much as $600 billion of mortgage related securities, which has helped rates move lower.
My readers know I am not one to spew statistics without seizing the irresistible opportunity to dish up some advice. Here is my take on some BIG opportunities that will develop in 2009:
The BULLISH:
First time buyers and FHA loans: here is a window of opportunity that may never ever exist again.
Severely deflated prices, low rates, and a way to buy with only 3.5% down. If you don't have the down and the closing costs, go ask Mom and Dad to gift you the down, and write an offer asking the seller to pay your closing costs (up to 6%).
Bay Area real estate is still Bay Area real estate. The price will rise again and you do not want to be someone who missed the greatest opportunity to "GET IN" that may exist for the next 50 years.
Holders of adjustable rate mortgages: You must move quickly to refinance into a 30 year fixed rate mortgage! Why quickly? If values fall in 2009 as quickly and as far as they did in 2008, you may not have enough equity to refinance (unless you can throw in some random cash).
This is a way to eliminate your risk of the market taking a turn for the better (which will cause rates to go up). You do not want to be caught with an adjustable when this market turns around....dangerous and risky. Rates ARE LOW ENOUGH!!!!
Holders of cash from stock portfolio liquidations: Do you see from the statistics above how many people are renting because they lost their homes to a foreclosure? These people will be renting for years to come from damaged credit.
If you have ever considered owning rental property, this is a window of opportunity.
Yes, you will need a down payment. Yes you will need to prove your income. Three words: INSTANT CASH FLOW
Buyers of second homes: Areas where there are concentrations of second homes always suffer the most in times of recessions. People will "let go" of a second home before they will let go of their primary residence. If you will be retiring in the next 10 years, buy it now and use it as the retirement house in 10 years. (You can still write off a second home)
The BEARISH:
Jumbo loans: Ugh! Not pretty.
Although the conforming loan limit will be $625,500 beginning next year, ("jumbo" is anything higher than this amount) any loan above this only has a decent interest rate if it is an adjustable. Fixed rate mortgages above this carry a stiff premium above conforming loans that most people are just not willing to pay.
If you have a jumbo adjustable that will re-set in 2009 you might consider refinancing into another 5-7 year adjustable. This will give you the security of FIXING YOUR RATE, hopefully for enough time until the jumbo situation works itself out.
Those hoping to modify their loans: What a hopelessly messy and confusing situation! Half of November's loan modifications increased the monthly payments and half added fees and interest to the principal!
"Loan modification" companies are cropping up everywhere...preying on homeowners in distress.
Loans that were modified are going into foreclosure anyway.
People hoping to get their loans modified are discontinuing their payments because this is often a requirement of a modification (needlessly ruining their credit for a modification that may never happen)
I suggest you call your bank DIRECTLY and ask for the loan modification department. Trust me, they have one.
Home values will continue downward: Still going down, and still going down quickly. My client purchased her condo for $195,000 last month. Within 2 weeks (before I could close her FHA loan) the same unit closed for $164,000 as a foreclosure. Appraisal came in at $170,000. Luckily (and because I wrote a long letter) the sellers decided to lower the price to my client and sell for the $170,000. They were smart to take their money and RUN.
The point? We can't close loans fast enough to keep up with the plunging prices!
Written by Janet Guilbault, Mortgage Lending Specialist based out of the San Francisco Bay Area
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So much great info here I don't know where to begin.
One thing for sure, there are a lot of folks out there who would love to refinance but cannot because the market value of their home has fallen to a point where it will not appraise.
At this point, even folks who paid the "sacred" 20% down are upside down.