Predicting the tops or bottoms of any market such as Stocks, Bonds or Real Estate, is educated guess work at best. But there are usually tell-tale signs that often appear around tops and bottoms that give one a sense of 'seeing the light at the end of a tunnel'. That may be happening now in the Orange County CA. residential real estate marketplace.
Tell-tale sign number one, has to do with the subprime lending debacle. A dismal milestone may soon move into the
housing market’s rear view mirror. Homeowners owing a total of $31.8 billion in subprime adjustable-rate mortgages began
paying higher interest rates this month of September.
That is the highest amount of subprime ARM's due to
reset over a one-month period in this housing cycle. By December resetting
subprime ARM's are forecast to drop to $25.2 billion. By the end of 2008, they
will have fallen to $3.6 billion. The reason being is that lenders have largely stopped making
such loans to borrowers with spotty credit histories back at the beginning of this year..
The large volume of interest-rate resets to higher levels, has been the largest factor in the jump in foreclosures in the past 16 months. In August,
foreclosure filings rose 36% from the previous month and were up 115% from last
year. As ARM resets reached it's peak, more homeowners will have trouble meeting
payments.
Granted, there will be a delayed affect of anywhere from 6 to 12 months. Here's why... homeowners who have an interest rate reset increase this month don't automatically stop making payments the next month. Many will try to hang in there, and some will run out of financial gas in 3, 4 or 6 months, then it takes anywhere from 5 to 8 months for the mortgage banks to foreclosure and put the REO property on the market for sale.... So the negative effect of this months the peak in the mortgage rate resets, probably won't be felt in the market as lower priced bank REO properties for sale, until sometime in the Spring and Summer of 2008'. While we may see
additional weakness in the months ahead one might argue that a record supply of
foreclosure homes for sale, combined with a peak in ARM resets, means the housing market is
near a bottom.
The other tell-tale sign, is the very low rate of sales as compared to history. As we wrote about a month ago and as reported in the OC Register newspaper, the low volume of home sales in Orange County CA. is currently at a 20 year low. Current sales volume is a bit lower then it was back in 1995 when the real estate market hit bottom here locally, and Orange County declared bankruptcy. Many large volume markets such as Stocks, Bonds and even Real Estate will tend to fluctuate from extreme highs and extreme lows. Given that Orange County now has considerable higher population and a greater number of homes then it did in 1995, one would have to conclude that today's low sales numbers can't last much longer and will gradually return to more normal levels. One of the big difference between Stocks/Bonds and Real Estate, is that the former will make turn around in a matter of months, while Real Estate takes years to correct and adjust.
If you are a potential Buyer waiting on the side lines, you may want to get ready and start to look closely at some of the pricing opportunities coming on the market now in the form of Bank Owned REO properties ans Short Sale foreclosures. If you would like to receive a list of low priced foreclosures, bank REO's, and short sales as they come on the market for sale, via email, visit our website at: www.OCBargainHomes.com
