Sub Prime Loan Foreclosures – what does it all mean?

We read a lot today about foreclosures and most particularly sub-prime foreclosures.  What does this mean?  Most particularly, how will it impact our market?  And what might it mean for me??? 

Well, first, let’s look at what happened 3 years ago.  The real estate market was HOT HOT HOT!  People were seeing quickly rising prices and in many cases were being priced out of the market.  The mortgage industry started offering some exotic mortgages in order to help people keep up with the rising prices.  Often, buyers were approved for WAY more than they could afford, but because of an introductory or “teaser” rate, the payments were low enough that they could get in… and IN THEY GOT!  Most all of these loan programs were some sort of adjustable rate loan – so flash forward to the spring of 2007 – what’s happening with what WAS a 3 year ARM at some teaser rate of 3%?  Well, now it might be 8%!!!  And guess what, many cannot afford their payments at the higher rates. 

Here’s what’s important to know.  The DC metro region is amongst the lowest hit areas and while we’re seeing some foreclosure, our subprime loans in foreclosure in Q4 of 2006 was between 1-3% (as opposed to some areas that saw this number over 9%).  Primarily where these foreclosures are occurring in larger numbers is in the Gulf Coast States (Katrina and Rita stricken) and in the manufacturing centers (Michigan, Indiana,
Ohio) where unemployment is extremely high. 

Our economic outlook and projected job growth is strong here in
Northern Virginia and we don’t anticipate having the troubles that some of these other regions are suffering from now.  We’ve made it through our correction which has increased our inventory and lowered prices to a point where buyers can afford to buy again.  For the most part sellers are still making nice returns – albeit lower than at the height of our frenzied market of the past few years.

A few takeaways?

1)     Buy what you can afford

2)     Stick with more main-stream loan products unless you know you can support it in a “worst case scenario”

3)     Don’t be afraid!  JUMP IN!

Feel free to call me or email me with any questions at all – as always, I’m never too busy to talk with you about your real estate questions and/or needs.

Jennifer