Buyers & Sellers Beware
If 2007 was bad with the subprime fallout last March; well hang on to your hats for the default train of 2008! With many of the low teaser rates expiring again in March 2008, there will be hundreds of thousands of foreclosures this year. An estimated $300 billion in subprime loans is expected to substantially increase their interest rates in 2008. This is one of the first years in my 30 years of real estate experience that the positive real estate forecasters are admitting is going to be a challenge. The law of supply and demand will prevail. Homeowners in difficulty with higher house payments will offer their homes for sale at even lower prices.
In many areas, the amount of housing inventory available would take over a year to sell, at the current monthly sales ratio. With more foreclosure and short sales being added each month, the buyers don't want to tell stories of how they bought today, but should have waited until later in the year and then they may have paid 10% - 20% less. The shopper psyche may be at an all time low, since the Depression. New homebuilders are slashing prices and offering large commissions, interior and exterior upgrades, payments of closing costs and almost anything reasonable, to move their ghost towns of new home inventory. Will a domino effect lead current homeowners to slash their prices as well? Old auction houses are back in business. New ones are springing up, offering a viable alternative so servicers can move their aging inventory. Lower prices can establish new lower comparable sales statistics. Lenders looking to cut their losses by accepting a $450,000 payoff on a $500,000 loan may be avoiding another foreclosure and saving thousands of dollars since REO inventory selling and carrying costs could easily be another 15% - 20%, for a property held just six months. Until the new and current resale inventory is absorbed, the real estate market will not stabilize.
Mr. Moon is president of Pacific Moon Real Estate, an REO brokerage company. (c) 2008 Mortgage Servicing News and SourceMedia, Inc. All Rights Reserved. http://www.mortgageservicingnews.com/ http://www.sourcemedia.com/