What Direction are Inland Empire Home Prices Going?

On October 10, 2007 – the California Association of Realtors reported their Housing Forecast for 2008. They predict (keep in mind they tend to be very conservative in a downward trending market) prices on average will go down 4% statewide; with the number of homes sold expected to drop 9%.

CAR indicates that home prices in Riverside / San Bernardino area hit a peak in January 2007 – with a price of: $415,160 – dropping 9.2% to an August 2007 median of: $377,130. That is a loss of about $5400 per month.

The fall issue of Economic Real Estate Trends, from PMI predicts home prices in the Riverside / San Bernardino / Ontario, California will have a 60% likelihood of being lower in 2 years.

An article in the Wall Street Journal (10/11/2007) reports on “The United States of Subprime”. WSJ estimated that high-rate mortgages accounted for 29% of the total of mortgage loans in 2006, up from 16% in 2004. Per the map of our area of California 40% of mortgage loans made between 2004 and 2006 were subprime. “High-rate loans are those that carry interest rates of 3 percentage points or more over U.S. Treasurys of comparable durations.” “As home prices accelerated across the country over the past decade, more affluent families turned to high-rate loans to buy expensive homes they could not have qualified under conventional lending standards.”

“We had an aggressive home-mortgage industry trying to get people into homes they couldn’t afford at a time when home prices were very high. It turned out to be a house of cards, says Karl Case, an economics professor at Wellesley College. We’re in the early stages of the cleanup.”

The WSJ article estimated there is $600 billion of adjustable-rate subprime loans due to adjust to higher interest rates by the end of 2008; resulting in more loans likely to fail in the future.

At the annual Convention of the Mortgage Bankers Association it was reported (10/16/2007) by The Associated Press that “U.S. housing prices will continue to decline at least through the end of next year and may not begin creeping upward again until 2010, executives from the biggest mortgage financiers said Monday.”

Thomas Lund of Fannie Mae said: “I think this year we will see a 2 percent decline in national home prices, and we’re projected about a 4 percent decline next year”.

Patricia Cook of Freddie Mae said: “investors of mortgage-backed securities likely will remain wary of committing more money to the cash-hungry market until they see a slowing in foreclosures. But that’s unlikely in the short-term, since many at-risk homeowners will see their adjustable mortgages reset to higher interest rates in coming months and years.”

12 Moreno Valley foreclosure homes are scheduled for auction: Nov. 3, 2007 at Fairplex, in Pomona. Homes are available for viewing: 10/20 and 10/21 from: 10am – 5pm. Specific information on these homes in the Bayer Facts section. Of the 12 homes going up for auction – 8 had prior sales in the last 29 months compared to recent list prices – values have gone down per month at least:

  • 29 months down $1831 per month
  • 25 months down $3804 per month
  • 33 months down $1275 per month
  • 24 months down $5754 per month
  • 24 months down $467 per month
  • 17 months down $3829 per month
  • 15 months down $5006 per month
  • 14 months down $4642 per month

Information obtained from First American Title of Notices of Default (the first step toward foreclosure) filed against Moreno Valley homes on 9/21 (18); 9/24 (19); 9/27 (17); 9/28 (18). If you figure 18 a day times 260 week days (about a year) that would be 4680 homes headed for foreclosure or about 9% of the 52,000 Moreno Valley homes. The glut of that many home loans in trouble now – could only result in an over-supply of homes for sale, in the future.

Subprime loans are causing havoc across America, and the problem is ongoing as more adjustable rate loans have mortgage payment increases upcoming. Easy lending put many families into homes beyond their means, and pushed up home prices to unsustainable levels. Once prices started to drop many homeowners find they can not sell their homes for what they owe and can not refinance out of their bad loans. Many of those homes will end up as foreclosures. The rate of home sales is now at 20 year lows in Moreno Valley at a time when the number of homes for sale grows and will continue to grow. Home prices in this area are expected to continue on a downward trek, while potential buyers are looking for bargains or waiting for prices to hit bottom.

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