Well, the tide is definitely turning as mortgage defaults, the bulk of which were sent to Southern California addresses, rose for the first time in 3 years.
Analysts credit the rise in defaults to a slowdown in prices and riskier loans which spell trouble for holders who depend on a rising market to lift them out of those mortgages.
Default notices were sent to nearly 13,000 homes during the quarter ending in September—that’s up over 3.5% from last year.
Default notices can lead to foreclosures, in which owners lose their homes due to missed or late payments. Until now, financially troubled homeowners have been able to easily work through their hardship because the rising values in real estate made those homes easily sellable. Not anymore.
While the number of defaults is just a fraction of the state’s 17 million residences, it is a clear indication of a slowdown. As foreclosures continue to rise while the housing market flattens or dips, more homeowners will find themselves in a tough spot, having to put their homes up for sale at a discount in order to sell the property in a down market.
This slow downward spiral will affect the entire market, just as the buy at any costs mania pushed prices rapidly higher.
If you have a dangerous loan you must consider refinancing while rates are still relatively low and lending guidelines easy. If you plan to sell in the next 1-3 years you should consider doing so in the next 6-9 months before the downturn gains momentum.
I am glad that I sold my last residence, a house in Chatsworth (California), in July 2004. I cannot know for sure if I sold my last residence at the peak of the Los Angeles County real estate market, but I am reasonably sure that I did sell the house close to the peak. Fortunately, the sale of my last residence went quite smoothly. I now am renting an apartment in Los Angeles. The nice thing about renting is that I can move in 30 days after I give notice. However, I like my apartment and I do not plan to move anytime soon. Also, the rent is quite reasonable. Many people who purchased Southern California real estate within the past year probably will regret it. They put themselves into a major financial bind, with increasing mortgage payments for those people with adjustable rate loans (especially option adjustable rate loans) and with large property tax bills, even with the benefits of Proposition 13. People who sell (including by foreclosure) their personal residences at a loss will get a very nasty bit of news when they prepare their income tax returns. Losses on the sale of a personal residence cannot be deducted as a capital loss on one's income tax returns. I never have seen a real estate market in Southern California as ridiculously overpriced as this current market. I hope that people who lose their properties to foreclosure and/or who take a tremendous financial loss will give a great deal of thought to their behavior so that they hopefully will never again put themselves into such a precarious financial situation.
Posted by: Steve Handelman | November 02, 2005 at 01:26 AM