The BIG LONG? One Realtors Opinion as to the longevity of the California Real Estate Marketplace and my market--Sonoma County "Wine Country".
I relate this market to being more, forgive the term, "organic", than the run-up market of the big “short” or bust. The borrowers are being vetted thoroughly. We have no "pick-a-payment" plans with negative amortization which got so many homeowners in trouble and the equally menacing “Sub-prime” loans? Gone and forgotten. Falsified and fraudulent incomes (such as house cleaners making $150,000 a year!)—gone. AND those corrupt appraisers and mortgage brokers are either doing time or have found another industry to plunder and pillage.
Both Fannie Mae and Freddie Mac report decreasing default levels. The height of defaults in the pre-bust market hit 4.6% with Fannie and Freddie but today is in the 1.4 range and decreasing. If you saw the “Big Short” you remember defaults hitting a level indicative of a market failing—but it didn’t happen. The stock market and bankers where all betting against themselves and artificially propping up the loan and real estate markets. Not this time. FICO scores? Today, FICOS are trending higher for those obtaining loans. Even the lower quadrant is up substantially. And what do FICO scores reveal--One's ability to repay a loan.
PLUS the folks who are obtaining loans today have very affordable interest rates in the 3.35-4% range. During the “Big Short” run up? Rates ran at 5.75 to 8%. The last great bally-hooed FED increase of a few months back saw home interest rates actually drop. Realtors® are concerned about folks nesting on those super low rates. Buy a move up home down the road? “What—me sell? With a fixed, 30 year 3.65%?”
Equity build up will also cushion any correction. According to “Core-Logic” a leading global property information, analytics and data-enabled services provider, recently released a new analysis showing “268,000 homeowners regained equity in Q1 2016, bringing the total number of mortgaged residential properties with equity at the end of Q1 2016 to approximately 46.7 million, or 92 percent of all mortgaged properties. Nationwide, home equity increased year over year by $762 billion in Q1 2016.”
“The total number of mortgaged residential properties with negative equity stood at 4 million, or 8 percent of all homes with a mortgage, in Q1 2016. This is a decrease of 6.2 percent quarter over quarter from 4.3 million homes, or 8.5 percent, in Q4 2015* and a decrease of 21.5 percent year over year from 5.1 million homes, or 10.3 percent, compared with Q1 2015.”