Simon says: " Sub-prime lender meltdown, foreclosures everywhere-- what's really happening here on the Westside?"
Several evenings ago I walked past a group of men near a local coffee shop at 9th Street and Wilshire in Santa Monica, talking excitedly about the sub-prime mortgage industry "meltdown." One of the gentlemen was sure it meant a significant increase in foreclosures. And another man said that he was looking forward to finding some great deals on houses he was going to purchase. The way they were talking I began to get the impression that Los Angeles was about to be littered with homeowners down on their luck, losing their homes to the bank.
All of the geniuses who had sat out the "ridiculous" rise in property values over the past six years, were about to be finally proven correct. Dozens of presumably well-heeled yuppies were about to find themselves in the bread line with the other homeless in Palisades Park. Disillusioned men and women would be looking out over the sunset, somberly enjoying their meals courtesy of the local food bank. Their eyes gazing out over the glittering Pacific Ocean towards Malibu, dreaming of the day they could get their home back.
Well, that's not going to happen and here's why. Currently, only about .5% of sub-prime borrowers are foreclosing on their homes nationwide, while about 13% are late on payments. That is just one in 200 sub-prime homeowners who are actually in foreclosure. The fact that more than one in ten is late on their payments is testimony to the reason why they were sub-prime borrowers in the first place. While many of these people aren't too good at balancing their checkbooks, there are many things a homeowner can do to resist foreclosing.
The number of homeowners who purchased properties on the Westside of Los Angeles with sub-prime mortgages is estimated to be under 5%. My personal mortgage broker has been in business for the past 15 years. He has only done one loan with New Century, the largest sub-prime lender to close it's doors.
Our housing inventory in Santa Monica is very low. Only 197 houses and condos are currently for sale. Let's say there are 15,000 homeowner residences in Santa Monica and 5% of them are owned by sub-prime borrowers. If they were all in default at the national rate of .5%, then we would have about four new homes for sale. If that number tripled, we would have about twelve new homes for sale. We are certainly not entering a time of crisis.
Real estate values like mortgage defaults is a geographic issue. Los Angeles has a foreclosure rate of only .1% above the nationwide average. This April, Los Angeles had the lowest foreclosure rate of the top five metropolitan areas in the nation, only 1 out of every 997 households is in foreclosure. In Florida this March, the rate was 1 out of every 278 households.
There are things that can kill real estate values: war, natural disasters, economic calamity and the concurrent closing of law firms, hospitals and biotechnology and entertainment industry companies. However, for now, a couple dozen sub-prime lenders that feed on the financially disenfranchised is not going to have any effect on our local real estate market.
Simon Salloom is a local REALTOR with Coldwell Banker Residential Brokerage
To comment on this article please go to: www.santamonicasimon.com
All of the geniuses who had sat out the "ridiculous" rise in property values over the past six years, were about to be finally proven correct. Dozens of presumably well-heeled yuppies were about to find themselves in the bread line with the other homeless in Palisades Park. Disillusioned men and women would be looking out over the sunset, somberly enjoying their meals courtesy of the local food bank. Their eyes gazing out over the glittering Pacific Ocean towards Malibu, dreaming of the day they could get their home back.
Well, that's not going to happen and here's why. Currently, only about .5% of sub-prime borrowers are foreclosing on their homes nationwide, while about 13% are late on payments. That is just one in 200 sub-prime homeowners who are actually in foreclosure. The fact that more than one in ten is late on their payments is testimony to the reason why they were sub-prime borrowers in the first place. While many of these people aren't too good at balancing their checkbooks, there are many things a homeowner can do to resist foreclosing.
The number of homeowners who purchased properties on the Westside of Los Angeles with sub-prime mortgages is estimated to be under 5%. My personal mortgage broker has been in business for the past 15 years. He has only done one loan with New Century, the largest sub-prime lender to close it's doors.
Our housing inventory in Santa Monica is very low. Only 197 houses and condos are currently for sale. Let's say there are 15,000 homeowner residences in Santa Monica and 5% of them are owned by sub-prime borrowers. If they were all in default at the national rate of .5%, then we would have about four new homes for sale. If that number tripled, we would have about twelve new homes for sale. We are certainly not entering a time of crisis.
Real estate values like mortgage defaults is a geographic issue. Los Angeles has a foreclosure rate of only .1% above the nationwide average. This April, Los Angeles had the lowest foreclosure rate of the top five metropolitan areas in the nation, only 1 out of every 997 households is in foreclosure. In Florida this March, the rate was 1 out of every 278 households.
There are things that can kill real estate values: war, natural disasters, economic calamity and the concurrent closing of law firms, hospitals and biotechnology and entertainment industry companies. However, for now, a couple dozen sub-prime lenders that feed on the financially disenfranchised is not going to have any effect on our local real estate market.
Simon Salloom is a local REALTOR with Coldwell Banker Residential Brokerage
To comment on this article please go to: www.santamonicasimon.com
Labels: Brentwood, Coldwell Banker, Real Estate, Real Estate Brokerage, Realtor, Residential, Santa Monica, Simon Salloom
posted by Simon at
10:30 AM
4 Comments:
Simon,that was an excellent piece,but I think you are wrong. L.A is not immune like you seem to imply.I have seen two major markets go own:Toronto and paris. That does not mean it will happen here,but it could,and few years ago before you moved here you could give stuff away.That is economic cycle.nothing goes up for ever.That's it I am tired.G
Simon,what I am saying is in economic cycle things go up and down,but at the end of the day if you are patient and DO NOT NEED TO SELL,you always make money.But if one buys something to flip (speculate)NOW is not the time, because you make money when you BUY not when you SELL.I thing the market is a little stretched and a small correction is healhty,just like in the stock market,we need to take some of froth off. There was a lot of speculation,and lots of people bought properties that they could not afford without creative loans.I am signing off.
Simon, I liked your article and you are right on with the analysis from a statistical standpoint. I would only caution you on the affects public perception on all economic condition, real estate included. While I agree with you that the Westside is probably insulated from a drop in values, you can clearly see the drop in prices around the country. Your same analysis can be applied to the them as well and the drop has been much greater than you would expect judging from those statistics. It all relates to public perception. I believe, like you, the public values the Westside properties to a greater extent than other areas and therefore the sub prime lending issue will have little or no effect in your area.
rk
Thank you for your comments George. I agree with you, L.A. Is not immune, nowhere is. However, real estate values in the U.S. Have gone up an average of about 6 percent a year since the soldiers came back from WWII. Last year, 2006, wasn't great, but values for sales went up 7 percent citywide while rents went up 12 percent. There is still a lot of demand and I can't see that stopping all of a sudden. In Paris and Toronto was there still a lot of demand vs. supply? What caused the ten year drop in values? What caused values to go up?
I am genuinely interested.
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