Friday, May 04, 2007

Will the Sub Prime Market Affect the Beach Cities?

Before I answer that question I think we all need to be clear on what a sub prime loan is..Most people think a sub prime loan means 100% financing and that isn't true. Not all 100% loans are sub prime and not all sub prime loans are no money down.

If you had to get a sub prime loan it was usually because your credit was bad or your ratios were too high.. meaning you didn't make enough money to qualify for a regular loan. The bad loans are the ones where the borrower had bad credit and didn't make enough money. These are the majority of people who are in trouble. The reality is that they should never have gotten loans in the first place. The other reality is that sub prime loans are a small percentage of the loans made in our immediate area..

Most people who bought in Manhattan, Hermosa, Redondo or El Segundo in the last few years had good job, made an above average income and had average to excellent credit. Most also were aware of what would happen when the teaser rate stopped and were prepared to make a higher payment or have already re-financed. In other words most South Bay/Beach City buyers are financially responsible. Notice I said most.. sadly not all.

We will certainly see foreclosures and short sales in all the Beach Cities including Manhattan Beach, Hermosa Beach, Redondo Beach and El Segundo. I wanted to emphasize that statement for a reason.... we are not completely immune to economic problems but we are in a better position to withstand them. I don't expect to see a huge impact on housing prices at the beach because I don't think the number of sellers impacted will be very high in our area. Also there are always foreclosures and short sales in any market. We just got used to the idea that you could sell before you got in real trouble.

Where we will see the impact of the sub prime problems is a tightening of loan requirements by lenders. I have already seen this in two ongoing transactions. Both clients are well qualified and the tighter rules have not impeded their ability to get a loan on the property they want to purchase.

What this means in practical terms is that if you have bad credit you will need to improve it. If you have too much debt you will need to pay it down before buying a home. If you don't make enough to qualify for your dream home you will have to start with something smaller and work your way up to the home you desire. What it means is that you will have to be more responsible with financial matters.

So back to the question Will the sub prime market affect the Beach Cities...Yes.. Will it have a major impact.. probably not unless the entire economy of California is affected..

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