Bay Area home prices may drop, real estate firm warns

The San Jose Mercury News just came out with an article (click here to read it) stating the following; Bay Area Home Prices May Drop, Again....

Although I would not exactly write whatever Zillow says in stone (some of their stuff is all over the map including values), the firm has spoken and stated the obvious of what I have been saying for several months now, that we should expect another price drop in the Bay Area this year. I personally think it could extend further than that and maybe into the next 2-3 years. Consider the following:

• The morons, which we call lenders, continue to baffle me in the manner in which they approach this crisis by continuing to:
• • A: Deny loan modifications to over 90% of qualified applicants
  • B: The loan modifications that they do approve are 2-5 year mods. Why is that a big deal? Because most people are upside down by at least 30-50% of the value of their home and in 2-5 years when the mods expire, where do you think they are going to refinance when their home is STILL worth 30-50% of what they owe? All of these people will be back to square one again, needing a mod or needing to do a short sale.
  • C: Lenders prefer to sell a foreclosure to investors for at least $20-50,000 less then asking price instead of selling it to a family who wants to purchase the home as their primary residence. Why? Because lenders prefer to take the cash now instead of having to wait 45 days for a buyer to close on their loan. Why this has an effect is because homes sell for less which brings values of that neighborhood lower, and neighborhoods that increase in the amount of non-owner occupied properties traditionally lose value. Neighborhoods with higher owner-occupied homes hold more of their value. This is not an opinion, it is a fact.
  • D: Lenders continue to make decisions that put a property into foreclosure (read below near the end of this story) instead of doing a loan mod or short sale which costs them and neighborhoods thousands in reduced value every time a home goes into foreclosure in a neighborhood. If you read a previous post and report of mine that showed there were 15 failed banks in the first month of 2010 alone, the above scenarios should give you a pretty good idea as to why this is happening. No logic in their decision making. Gosh, all that money spent at Harvard didn't do much, did it?
• Lenders, and I do not blame them on this one, continue to be tight with their guidelines which means it is a little harder today to qualify for a loan which in turn locks out more home buyers wanting to get into this market. But that in itself is not a bad thing because that will deter future foreclosures from these new home buyers as they now qualify for a loan and it is now in their budget to be a homeowner. Imagine that? Having to qualify for a mortgage. Hmmmm....
• Unemployment continues to be an issue. Until I see this resolved, we will be here for a while.

The above information and predictions I have been making have been coming to fruition not because I am a rocket scientist or hold a crystal ball, I just use logic in my predictions and logic will tell you that we will be here for a while. But it is not all bad.

If we do see another price drop, which I think we will, I do believe that we have seen the worst of it. We may see another 3-5% drop, could be a little lower or a little higher. But not by much. Let's put this into perspective:

If you buy a home for $300,000 and it drops another 3-5%, you are talking about $9,000-15,000 which really is not that big of a deal and won't be 10 years from now. If you buy today, later this year or next year, you still bought either at or close to the bottom of the market and that is where you always want to buy. Prices are so low in many areas that the mortgage payment is lower than rent. No kidding. But don't be in a rush to buy and don't pass up a good opportunity either. Buy within your means and ONLY get a 30 year fixed rate loan that is fully amortized. If you can afford a 15 year fully amortized loan, do it. Rates are low, prices are low, definitely not a bad time to buy. But if it takes you a few months or a couple of years to line up all your ducks in a row, save a little money for a down-payment and improve your credit, you will still be ok.

This week we had a sale that was about to close but the sellers were short by approximately $7,200 even after all parties pitched in. The property had already received a notice of default and the notice of trustee sale was right around the corner. We called the lender, Wells Fargo, to let them know that the seller was even willing to sign a note for the $7,200 to the lender so that this would not end up either going into a short sale which would have brought the sales price down by at least $50,000 or even worse, have the property go into a foreclosure which would have cost the lender a lot more than $50,000 in lost interest, attorney fees and value when the property eventually sold later down the road.

What did the lender say? That there was nothing that they could do and would prefer to just have it go into foreclosure. This is what I am talking about. No logic.

Lenders hold the key in this crisis. Until they get real and make real logical decisions, we will be here for a while.

Comments

[Jason Wheeler]

I won't be surprised to see them continue to drop over the next year or so

[Bart Marchioni]

I completely agree, Robert. As a short sale specialist I am experiencing the same things you talk about in your article.

[Alan Kroll]

I understand your frustrations with the lenders. Loan Mods are very taxing on the average upside down homeowner, and the banks do need to streamline the approval process and do more significant modifications. If they don't then we will foot the bill for a lot of their poor lending practices.