For almost two years now, there have been serious rumblings and grumblings in San Diego real estate circles about Option ARM and interest-only loans that could put a number of buyers in default–resulting in a big spike in San Diego short sales and foreclosures. We call them bouncing mortgages.
I initially gave the issue detached interest, because our clients tend to be a conservative lot when it comes to borrowing. We deal with few real estate speculators and most of our clients are solid buyers of San Diego primary and secondary homes.
My interest in these instant gratification loans is no longer a detached one, because the fallout from these ARMs is contributing to market weakness. Some of our conservative clients are seeing their San Diego home values stagnate or decline, in part due to these lending practices. It has been reported that 7 out of 10 option arm borrowers are sticking to the minimum payment schedules and in so doing, are stacking up substantial additional debt.
Many now owe more than their homes are worth. In San Diego County, short sale advisories on listings are appearing within our MLS on a daily basis, and will ultimately affect appraisals and valuations. In short sale transactions, the lender agrees to accept less than what is owed on the property (and obviously less than the prior appraised value).
In his Nations Housing column, Kenneth Harney writes that John G. Walsh, senior official at the Federal Comptroller of Currency, is sounding a quiet alarm:
We’ve had consumers tell us they didn’t know after 60 minimum payments on a (payment-option loan), they would owe more than they did when the loan was brand new. They should certainly understand the basic bargain: The price of a low payment now is a much higher one later. I think it goes without saying that someone, at some point, should have explained this to borrowers with these loans.
In defense of lenders, I am sure many did explain the consequences and hazards of these loans. I am also certain that many of these borrowers were counting on their homes appreciation to more-than-cover the accumulated debt on their negative ARM loans. ((Why does this so remind me of the investors who were slaughtered by margin calls during the stock market wipeout just a few years ago? Are these the same people who turned that same mentality to real estate?))
The fallout has begun. Once again, San Diego and Southern California are on the bloody edge of the real estate envelope. There are people getting wiped out in this market, and there will be those who make fortunes. We are advising our clients to sit tight if they do not need to sell and if they do, to price their property aggressively. With buyers, we use the same caution, negotiate strongly, and advise them to stick with blue chip properties and locations (usually coastal San Diego and singular luxury properties). We cant help but remind them of that dictum in the securities market:
Don’t try to catch a falling knife.
Nothing is permanent, except for change.
By the time the masses have turned their real estate investment and speculation dollars to unappreciated geographical markets, smart money will already be moving back to our balmy coastal climes proving once again that nothing can take the place of location, location, location.
2016 Note: There are few short sales, foreclosures or bouncing mortgages in San Diego these days. However, any we can find are listed below. If you have any questions, please feel free to call Roberta or Scott Murphy at either 760-942-9100 or 760-613-6190 or email firstname.lastname@example.org
BACK ON MARKET! Timing is everything. In demand condo in popular Palm Springs Villas I. FEE LAND. LA, OC, SD weekenders love this place which has all the amenities expected in a relaxing retreat: pools, spas, tennis. Want excitement: close to town will all the village has to offer. This one bedroom one bath hideaway is just steps from the pool. Very much in demand seasonal rental. FURNISHED. SHORT SALE.
Fabulous Short Sale Opportunity! Ventana on Mountain View's premier street bordering The Polo Estates! Panoramic mountain, fairway and lake views. Entertainer's backyard with palm groves, pool, spa, waterfalls, firepit and BBQ kitchen island. The courtyard entry leads into the 18' high, skylit rotunda foyer, huge 43' Great Room, huge 35' Master, big 17' office/den/library - 4449 sf. of spacious luxury. Courtyard casita plus two guest rooms with their own sitting room (or media room or family room). Highly upgraded, this elegant home is move-in ready! Dramatic 12' soffited ceilings in the living areas, sound systems, custom european cabinets including a wine cellar center, granite counters, gourmet kitchen, elegant window treatments, Jacuzzi whirlpool tub and huge walk-in dual shower in master bath, recirculating hot water, eight-foot high patio doors, security system with smoke, fire and motion sensors. This home is truly feature rich.
Bank owned and priced to sell. This is a great buy in upscale Palazzo, a gated community with low HOA dues, and is conveniently located close to new hardware shops and grocery store and the Golf Club at Terra Lago Resort. This immaculate 5 bedroom, 4 bathroom home, including a casita, shows very well and has many custom features. The gourmet kitchen has stainless steel appliances, granite countertops and lots of cabinets. Very private backyard which is ready for you to build your own pool. Take advantage on this bank owned property that is aggressively priced.
PRICED REDUCED FOR THIS POST FORECLOSURE BARGAIN! Own your Mini Ranch, Home made by Cavco, stick built 4 car garage measuring 24X44' with 220V and 8 foot doors; 30 GPM well,underground irrigation system throughout the property, several horse pipe corrals, 4 horses hot walker,120x210 fenced 3-rail PVC riding arena,NO CCR's,NO HOA's,NO WATER BILLS,NO SEWER BILLS,two water systems, one 3/4 for the residence and 1-1/2 system for the field and pasture.Outside sewer water and power for RV.4 car garage (stick built measuring 24X44') with 220V and 8 foot doors.LOW TAXES,ONLY 1.00350% tax base, with $51.28 special assessments per year.Kitchen open and airy w/granite counter tops, tile flooring, panoramic views and a ton of potentials!3.90 splittable (min 2 acres lot )double access entry no need to turn large trailer around,simply drive through and around.Please agents make sure to open all the supplements on this listing for plat maps and floor plans plus a detailed well completion report included.As you relax on the front porch enjoy watching the boaters on the lake and the parachutes jumping from the airplanes. Airport is just half a mile. Very private and relaxing. Must see to appreciate!!
Cash offers only for a quick sale. Need offer immediately for this short sale. House needs new kitchen, new bathrooms, air conditioning. Pool filter does not work. Jacuzzi is also not operational. Great opportunity for a contractor. 3 bedrooms, 2 bath, on cul-de-sac street. Home backs to shopping center on Thousand Oaks Blvd.