April 20th 2010
Over the past few weeks the local Santa Cruz newspaper has written several articles about the health of our local real estate market. The most recent article reported the recent rise in the median prices of homes. Unfortunately the recent rise in median home prices has little to do with the health of our market. It is more reflective of the seasonal pattern of our local market, in which the median price of homes historically rises during our spring and summer months due to the increase volume of homes being sold.
Of greater interest and more reflective of the health of our real estate market was the recent article that reported over 10,000 Santa Cruz homes are financially under water. If you remember, the first major cause for the downturn the real estate market was attributed to sub-prime loans. We have cleared out a large portion these loans over the last two years. But now we are facing the next wave of troubled loans. Which are the variable loans that were made over the last five years. Many of these loans are now coming off their low initial teaser interest rate and are now scheduled to readjust to a higher interest rate.
Therefore our local real estate market is not out of the woods yet. We currently see a lot of home owners still having trouble making their mortgage payment and thus resulting in getting a Notice of Default (NOD) from the banks.. As shown by the graph below, we have not seen an appreciable decrease in the number NODs in the last two years. There are a few new plans by the government and banks to stem this tide of foreclosures. But as of now there has not been much success with the loan modification programs. So until we see NODs fall significantly, the real estate market will be slowed by the influence of bank owned properties and short sales. Thus a good market for Buyers and poor one for Sellers.
Comments(2)