The Next Foreclosure Wave: Mid-Range and Luxury Homes

October 28, 2009

As a Certified Foreclosure Specialist, I’ve been talking about the “next foreclosure wave” for quite some time now.

As the subprime crisis winds down, the next crisis emerges – Option ARMs and Alt-A loans (3/1 ARM, 5/1 ARM, and 7/1 ARMs) are all resetting over the next 18 months. See this chart for a visual of what I am talking about.

These are the loans that middle-class Americans all got during the 2004-2007 timeframe. As a Realtor selling homes during this time, all the mortgage brokers and banks I worked with was selling these loans to almost every buyer. It’s scary how many ordinary middle-class folks have these loans. These are not your sub-prime category of people, these are people who probably can afford a jump in their payment if it increases when the loan resets. But the wildcard here is unemployment… With 12.5% of Bay Area residents out of work, this spells trouble for people who are currently struggling to make ends meet. A payment increase is insult to injury when someone is living off savings while trying to find a new job. I talk to people all the time who have drained their savings, 401(k)s, and are hanging on by a thread.

We are not out of the woods yet – there are a lot more foreclosures coming, especially in the mid-priced range of the market. RealtyTrac just released their Q3 2009 Foreclosure Report and it indicates that we are starting to see huge increases in foreclosure rates in cities that were not previously foreclosure hotspots.

What does this all mean? There may be opportunities for buyers to scoop up great deals on properties in the mid-range of the market. For example, we are starting to see properties that sold for as much as $850,000 here in San Jose now selling as bank-owned properties (REO) and short sales for as little as $420,000. 50% price decreases off the market highs is now becoming common among these expensive properties. I expect this trend in the mid-range and luxury markets to continue as we head into 2010…

Written by Bart Marchioni, Certified Foreclosure & Short Sale Specialist · Filed Under Real estate