The Spring of Home Sellers' Discontent
And while prices in places like Los Angeles have remained relatively firm, there are more and more bargains to be had there, thanks to a housing inventory that has fattened by 30 percent since last year, including a growing supply of foreclosed properties repossessed from borrowers who defaulted on high-interest subprime loans. Take, for instance, the two-bedroom townhouse that Bryan Metoyer picked up last month at an auction in L.A. that disposed of 275 bank-owned properties in just a day.
"I was trying to get it for under $300,000, but another bidder stayed right in there with me," he says of the competition, which he finally won with a $320,000 bid.
Still, Metoyer figures he saved about $50,000 from what similar units have sold for recently. And although he expects the market to remain soft for a while, "I don't see a bubble bursting here. It's either going to hold steady or go back up again. So either way, I win."
Continuing defaults in the subprime lending market will surely mean more distress sales—like the ones auctioneer Robert Friedman plans to hold for properties in California's Central Valley, Atlanta, and south Florida this summer. "But I don't think it will be anywhere as bad as it was during the last downturn [in the early 1990s]," says Friedman, chairman of Real Estate Disposition Corp., which only recently began holding auctions after what he describes as a decade-long "hibernation." My sense is that we'll be through this in about two years, then we'll go back to sleep again."
Subprime. Indeed, mortgage bankers estimate that although about 1 in 10 subprime borrowers is now defaulting on a loan, taken together they represent only about a half of 1 percent of all 75 million U.S. homeowners. "It's not an eyebrow-raising number," says John Robbins, chairman of the Mortgage Bankers Association, who points to Fed Chairman Ben Bernanke's recent conclusion that he doesn't expect "significant spillovers" from the subprime market to the rest of the economy.
That said, tightening credit standards—not only for subprime borrowers but also for more creditworthy ones—has clearly dampened demand and pushed sellers to do more than just lower prices. In a recent survey by the Federal Reserve, nearly half of all loan officers said they had raised their standards for nontraditional loans, while 15 percent said they had increased requirements on prime borrowers, raising credit score minimums and more closely scrutinizing property appraisals.
To move their homes, builders who once required big deposits before even breaking ground are now making deals like the one Vera Struchkouskaya inked this month on a $460,000 apartment in the CanCo Lofts in Jersey City, N.J. The nonbinding contract required only a $2,500 deposit, "and I get to see the finished apartment before I have to commit," she says of the early 2008 move-in date. "So if I find something better in the meantime, I can take it."
And if not, she can always ask the CanCo builder for an even better deal.
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