The subprime fallout is sending ripples through the housing market. The worst has yet to be determined - only time will tell. The question is, what effect will this have on the housing prices?
It is very likely 100% financing will be gone altogether in the coming months. Subprime borrowers will need to come in with 10% down and alt-a borrowers - those that are not considered prime borrowers but not as risky as subprime, will be required to come in with 5% down. Purchasing power of first time, subprime borrowers will be reduced. With too many condos still on the market, there will be added price competition. Seller assisted financing, FHA and VA will become players again. Look for modest price decreases in the over saturated entry level condo markets.
As long term interest rates remain very favorable, prime borrowers in entry level markets (not many) and move up buyers, sellers of homes at and above the median home price will not see dramatic effects. Competition in the mortgage market to service prime borrowers willl get fierce. Good credit and money in the bank = great time to buy real estate. Don't look for price reductions in the higher prices and luxury markets like the La Jolla homes market.
Ultimately, banks selling less risky loans will be a good thing for the market. Ridiculus rates of appreciation made 100% loans a viable option for lenders and borrowers alike. Mortgage banks are in trouble because they kept selling these loans as inventory piled up and short term rates on adjustables rose. Without the appreciation, borrowers were put in homes they simply could not afford. They were set up to default. Tighter lending guidelines are putting an end to this as we speak.
We are in for a ripple through the entry level market. Already softening markets like East County won't be helped, but should survive.
It is very likely 100% financing will be gone altogether in the coming months. Subprime borrowers will need to come in with 10% down and alt-a borrowers - those that are not considered prime borrowers but not as risky as subprime, will be required to come in with 5% down. Purchasing power of first time, subprime borrowers will be reduced. With too many condos still on the market, there will be added price competition. Seller assisted financing, FHA and VA will become players again. Look for modest price decreases in the over saturated entry level condo markets.
As long term interest rates remain very favorable, prime borrowers in entry level markets (not many) and move up buyers, sellers of homes at and above the median home price will not see dramatic effects. Competition in the mortgage market to service prime borrowers willl get fierce. Good credit and money in the bank = great time to buy real estate. Don't look for price reductions in the higher prices and luxury markets like the La Jolla homes market.
Ultimately, banks selling less risky loans will be a good thing for the market. Ridiculus rates of appreciation made 100% loans a viable option for lenders and borrowers alike. Mortgage banks are in trouble because they kept selling these loans as inventory piled up and short term rates on adjustables rose. Without the appreciation, borrowers were put in homes they simply could not afford. They were set up to default. Tighter lending guidelines are putting an end to this as we speak.
We are in for a ripple through the entry level market. Already softening markets like East County won't be helped, but should survive.
Labels: la jolla ca, mortgage market, san diego real estate
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