By Mel Wilson The real estate market experienced an incredible boom during the past four-and-a-half years. Our region experienced a classic seller’s market. Today we are in a buyer’s market-the inventory of homes is high, they are taking longer to sell and a record number of properties have gone into foreclosure. The Countrywide effect Recent turmoil in the real estate financing world brought most segments of the San Fernando Valley residential real estate market to a screeching halt for about three weeks. A leading factor in the turmoil is the fallout from subprime lenders have experienced. Countrywide Financial Corp. has a subprime subsidiary that specializes in subprime loans and took decisive action to raise capital and cut its expenses in an effort to stay afloat. According to the Mortgage Bankers Association, 17 percent of the nation’s subprime adjustable rate mortgages were made in California. Subprime loans make up 14 percent of all loans in the country. Five out of 20 foreclosures start on subprime adjustable-rate mortgage (ARMs). Wall Street provided the lion’s share of funds loaned to subprime borrowers. Once subprime loans began to perform poorly, Wall Street stopped supplying funds to subprime lenders, drying up this source of financing. As a result, the nation’s busiest lender tightened their credit requirements for home buyers, a trend that started in early 2007. Without notice and following the lead of Countrywide, most mortgage lenders eliminated half of the loan programs available to entry-level buyers. This abrupt freeze sent buyers and sellers scrambling in search of financing to keep transactions intact. The Southland Regional Association of Realtors, which tracks real estate transactions in the San Fernando and Santa Clarita Valleys, recorded a 26 percent increase in the number of escrow fallouts for the month of August, many due to mortgage disruptions. Trouble on the horizon The stream of foreclosure and properties going into default is likely to climb further in the foreseeable future. According to RealtyTrac – a firm that tracks foreclosures nationwide – there are more than $2 billion of ARMs that will reset to higher payments in the next two years. If foreclosures continue at their current pace, hundreds of property owners will be faced with the reality of losing their homes. But help is on the way There are positive signs for buyers, sellers and those who wish to refinance on the horizon. In the last two weeks, the federal government took bold steps to stabilize the real estate market: & #149; U.S. Senate Banking Committee and the House of Representative passed H.R.1852 the FHA reform bill (Building American Homeownership Act of 2007) raising FHA loan limits & #149; Federal Reserve Board cut its discount rate by a half percent & #149; Federal Regulators encouraged mortgage lenders to work with delinquent borrowers forbearing foreclosures California is a high housing-cost state where the median-priced home exceeds $593,000. The U.S. House of Representative’s version of the FHA bill would raise FHA loan limits in California to 125% of an area’s median home price, capped at $729,750. This legislation is vital to thousands of Californians, many of whom will now be able to purchase a home with a low down payment or refinance specialty mortgages and subprime loans. Seller’s boom shifts to buyer’s bonanza There are many opportunities for buyers to take advantage of the current market conditions. SRAR recorded that the inventory of homes on the market increased from August to September to 11,854 units. Two years ago there were less than 3,000 homes on the market. And during the month of August the San Fernando Valley had an increase of 289 foreclosed properties. As foreclosure properties increase and homes take longer to sell, buyers will be able to negotiate more aggressively to get a good value. The recent cut in mortgage interest rates could result in a $240 per month savings on a median-priced property in our area. The recent market shift may be reason for buyers who have been sitting on the sidelines to take another look. There is an ample selection of properties for buyers to choose from. Mel Wilson is a realtor who has represented buyers and sellers for more than 29 years.
