Lenders say there is an untapped market among borrowers with good credit scores like self-employed workers who don’t have proper income documentation, or for responsibly made loans to borrowers with credit problems that have had bankruptcies in the past or had to sell their home for less than it was worth.
If they are successful in recruiting brokers, lenders believe the market potential for both types of loans could reach $200 billion annually.
A big hurdle: finding the right kind of brokers and instructing them in the lost art of making a subprime loan. Some are returning to the industry for the first time since the crisis. Others like Mr. Boyd have never been in it.
“I knew a mortgage was a loan for a house,” said Mr. Boyd, who was recruited by his boss, Jon Maddux, after selling him a Calvin Klein suit at a local outdoor mall. “I came in just a blank slate.”
Before he co-founded Drop Mortgage, the parent company of FundLoans, in 2014, Mr. Maddux ran the website YouWalkAway.com between 2008 and 2012. The site charged homeowners on the brink of foreclosure $995 to learn how to leave their debt behind.
Mr. Maddux said his experience advising down-and-out homeowners is today helping him pitch them loan products. Drop Mortgage and FundLoans made about $200 million in subprime and alternative documentation loans in 2016, funding them by selling them to hedge funds and other Wall Street investors.
“I’ve seen what caused these people to walk away and I don’t want to be a part of that,” he said.
Subprime mortgages are typically made to borrowers with a credit score of around 660 or lower, at interest rates ranging from 6% to 10%. Alternative documentation loans, or Alt-A loans, are made to borrowers with higher credit scores but who use bank statements or other less conventional ways to prove their income.
How many of the long-time owners are selling the family homestead, and downsizing now that the kids are gone?
We don’t know for sure who falls into that category – people with older kids could have bought a house 5-8 years ago and already be empty-nesters. But a growing trend of long-time owners selling could open up some flexibility on price, which could slow down the appreciation trend.
We could also assume that the longer it’s been since the last sale, the more renovating the house could need. The long-timers should have ample equity, which could enable them to cave on price, rather than remodel just to sell. Those who went off to the pearly gates are more likely to have their heirs dump on price too.
Our research department checked the last 125 house sales between La Jolla and Carlsbad – the closings dated back to 11/23/15. These are the number of sales in groups based on when the seller purchased the house:
La Jolla to Carlsbad House Sales – Previous Sale Date
New houses: 3 (2%)
2012-2015: 22 (18%)
2009-2011: 19 (15%)
2004-2008: 29 (23%)
2000-2003: 18 (14%)
0-1999: 34 (27%)
The last two categories combined for 42% of the total sales. Not only are those houses at least 12 years old (most were much older) and probably need renovating, but in almost all the cases, the equity positions were huge.
If there is some future softening of home values, it will be more likely due to the long-timers being more reasonable on price, rather than the ‘bubble’.
A. The median sales price was $1,080,000
B. The average cost-per-sf was $505/sf.
C. The average market time was 60 days.
D. There were 24% of the total that sold in the first 10 days on market.
E. Eleven sellers sold for less than they paid (9%).
F. In 14 of the sales, the listing agent represented the buyer too (11%).
G. Five were ‘sold before processing’.
The first two categories – homes purchased since 2009 – totaled 33% of the sales. Those sellers enjoyed a nice windfall of quick appreciation, and may be move-up buyers?
Those who bought in 2004-2008 (23%) were probably glad they waited!
I removed the ‘Foreclosure’ and ‘Short Sale’ buttons at the top of this website.
The distressed market around NSDCC appears to be over, and while there will be some stragglers, there won’t be any distressed sellers unless, and until, the banks start up the foreclosure machine again.
Literally, there has been zero NSDCC detached homes listed as short sales this year, and only one bank-owned house (which we saw).
With distressed properties off the list, we are back to the Big Three list of serious sellers; death, divorce, and job transfer. These groups are a constant source of homes coming to market, and we know they aren’t just testing the waters.
Are there other serious sellers in play?
Others have said that the move-up market should be lively, and I poo-poo’d the idea just due to the difficulty of selling one to buy another.
But should the move-up-or-downers be considered as the new #4 on the list of motivated sellers? Here are four groups with reasons:
Committed to Long-Term – The primary driving force in today’s market seems to be families looking for a house raise a growing family, and stay forever. Even though I recommend that you should move every 6-12 months, nobody is taking me up on it any more! 🙂
Squeeze to Improve Quality – Anyone who finds themselves in an inferior situation – location, schools, etc. – will endure the inconveniences in order to upgrade. Anyone motivated enough will find a way – and all you need is money.
Inheritance – Those who receive a windfall amount of money will consider upgrading their lifesytle by purchasing a new residence. I’m convinced this has to be a segment of the demand, based on considerably-higher prices paid.
Combining Generations – With the folks getting older, it’s natural for them to consider sharing a residence with the kids to get extra support.
These four groups of potential buyers who need to sell theirs to buy the next house have the necessary motivation to endure the financing hurdles. They would add to both supply and demand, and help build some sales momentum (which could be off to a sticky start here in 2014).
If you are thinking of moving up or down, and want some advice on how to handle the particulars, get a hold of me! firstname.lastname@example.org
In the San Diego-Carlsbad area, 11.4 percent, or 66,899, of all residential properties with a mortgage were in negative equity as of the third quarter 2013, according to CoreLogic. It was a slight improvement from 2Q13, when 13.6% of all mortgaged properties were in negative equity.
Equity sales, that is sales of non-distressed properties, now constitute two-thirds of all home sales in California, compared to less than one-half only one year ago. A report from the California Association of Realtors® (C.A.R.) puts the share of equity sales in the state in February at 67.1 percent, compared to 64.4 percent in January and 46.7 percent in February 2012.
This is the highest share of equity sales since April 2008.
Short sales made up 19.9 percent of sales in California in February compared to 21.5 percent in January and 24.8 percent a year earlier. Sales of lender-owned real estate (REO) represented 12.6 percent of the home market in February, down from 13.7 percent the previous month and 28 percent in February 2012.
C.A.R.’s Pending Home Sales Index (PHSI) rose 8.7 percent from a revised 101.4 in January to 110.2 in February but was down 8.2 percent from the index in February 2012 of 120. The index is based on signed contracts and is a forward-looking indicator of future home sales.
The annual decline of pending sales might be attributed to the tight inventory of available homes. The Unsold Inventory Index for REOs was unchanged from January to February at 2.0 months while the Index for short sales was 3.3 month and for equity sales it was 3.8 months.
Maggie Medved was stuck with her Phoenix house for two years after the market crash wiped out the equity in the property. Last year, as prices in the area rose by the most in the U.S., she and her partner were finally able to sell the 3-bedroom 1950’s style home and move to a larger place.
“We were counting the days for when we could move,” said Medved, 40, who trains employees for weight loss company Jenny Craig Inc. “We definitely knew it was a waiting game because it would’ve been financial suicide if we had sold earlier.”
Medved was among the 12 million borrowers in the U.S. who at the peak of the real-estate downturn owed more on their mortgages than their houses were worth, blocking them from moving or saving money by taking advantage of the lowest borrowing costs on record to refinance. As prices recovered, the number of underwater borrowers fell by almost 4 million last year to 7 million, according to JPMorgan Chase & Co. , and could drop to 4 million within 2 years.
The housing market is rebounding faster than anyone thought possible, according to Blackstone Group LP ’s global head of real estate Jonathan Gray, as the Federal Reserve buys mortgage bonds to keep rates near record lows and investors sop up a diminishing supply of properties for sale. Housing construction could boost U.S. gross domestic product by 0.4 percentage point and home price appreciation may add another 0.2 percentage point, Bank of America’s senior economist Michelle Meyer forecasts.
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Millions of Americans age 50 and older are looking around their spacious homes and are deciding they don’t need all that room anymore. The kids are gone, maybe a spouse, too. And they could really use the money from a sale to bulk up their retirement funds.
But downsizing isn’t always simple, painless—or even all that beneficial financially. With the real-estate market still fragile, many baby boomers are getting a lot less than they expected for the old homestead. All too often, they have little cash left over after buying a new place, and their monthly expenses don’t fall as much as they thought—or may even rise instead.
Then there’s the emotional pain of scaling back. Many baby boomers are finding they lack the stomach or stamina to dismantle their lives. They can’t bear to sort through or part with all those boxes in the basement, or argue with the adult children who want to keep the house where they grew up. Sometimes they downsize only to find they miss their old lifestyle and stuff.
“Don’t make any broad assumptions that downsizing is going to save your retirement,” cautions Jeff Bogue, a certified financial planner in Wells, Maine. “It may help your finances, but I’ve seen plenty of people who find that it doesn’t pan out as they had thought.”
It’s a challenge lots of boomers are going to face. All told, more than 40% of Americans ages 50 to 64 plan to move within the next five years or so, according to the Demand Institute, which is jointly operated by the Conference Board and Nielsen Co.
Dominated by “the many baby boomers who delayed retirement during the recession,” prospective downsizers exceed would-be “upsizers” by nearly 3 to 1, says Louise Keely, chief research officer at the Demand Institute.
Here’s a look at some of the problems you might face as you scale down—and how to overcome them.
For those who think we are still over-valued and need to resort to historical trends, consider this.
If it weren’t for the big blow-up in the 2003-2004 era, we might have been fine.
We are roughly 25% higher in pricing then we were 10 years ago, or about +2.5% per year.
The last three selling seasons have been steady.
Average $/sf of NSDCC Detached Sales between April 1st and July 31st:
Sustainable? As long as rates and inventory stay low, we should be OK for now. For sellers who are “waiting for prices to come back”, consider that this is probably where they were supposed to be, and the fog-a-mirror financing that fueled the bubble won’t be returning.
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