Manhattan Beach-Beach Cities Real Estate: Foreclosures...Big Trouble?

The problems in the financial markets have spurred speculation on the prices of Manhattan Beach real estate and real estate prices in the other Beach Cities... Hermosa, Redondo and El Segundo. Many are predicitng (hoping) that the entire South Bay real estate market and the Beach Cities in particular will crash dive. I don't think our market will escape unscathed but I don't see it going back to 1990 levels either.

In last Sunday's ( August 12, 2007) LA Times there was an article titled Foreclosures May Spur Price Drop... that has a cool tool labled Foreclosures: How Does your Zipcode Fare next to the article. If you put in a zipcode it tells you how many foreclosues are in that zipcode. Naturally I put in the zipcodes from the Beach Cities and wasn't surprised at the results.. namely there are very few bank owned properties in Manhattan Beach, Hermosa Beach, Redondo Beach or El Segundo. There are a total of 8 bank owned ( reo) properties in the Beach Cities. However if you go to inland cities you will see a much higher number and they are going to have some problems.

Here's how the numbers break out..

Manhattan Beach: 1

Hermosa Beach: 3

North Redondo : 2

South Redondo: 1

El Segundo: 1

Yes.. there will be more in the future... that's life. There will be people who get divorced and run into problems. There will be those who can't refinance and will have to sell or lose everything. Some will have health problems and huge medical bills. There will be people who lose their jobs and can't make their house payment. But these are problems that happen in all markets. We just got used to the fact that you could sell fairly quickly if you got in trouble and that option is not as viable.

Most homeowners in our area are in fairly decent financial shape and should weather this market relatively intact. Many who don't have to sell will simply take their homes off the market. Prime location property will likely continue to see big dollars as these properties are getting scarce. Marginal location property and homes in poor condition will not bring top dollar and will see discounted prices. Those who have to sell will need to be sure their property is in excellent condition in order to beat the competition. The will also need to be aware that prices may be fairly stagnate for a period of time as the market adjusts.

Buyers with cash and a good FICO (above 720) will be Kings in this market. Morgan Brown has a great three part series on credit.. Part III deals with improving credit scores. Whether you are a buyer or seller take the time to read this post. You might also want to check what Brian Brady has to say about the current financial market.

Manhattan Beach-Beach Cities: Home Loans .. The Good News

As I've noted in my last post about Beach Cities Home Loans there are going to be major changes in how buyers qualify for a new purchase or to refinance their current loan. Many of these changes are going to create some challenges in the short term but will prove to be smart over the long term.

Tightening of loan underwriting guidelines should make financial markets feel a bit more secure and lead to home mortgage rates stabilizing over the next few months. Home loans are mainly tied to bond rates and tighter guidelines should still have an impact. Yesterday's concern in the stock market over credit woes by subprime lenders was evident as yields on the 10 year Treasury notes fell pushing up bond rates. If lenders can reassure the market that lousy loans are a thing of the past the markets may stabilize a little.

Most Manhattan Beach home buyers and those in the other beach cities of Hermosa Beach, Redondo Beach and El Segundo should not have major problems obtaining a home loan. Our buyers typically have good jobs, excellent credit and money for a down payment. The process may be longer and more arduous but not difficult. The biggest obstacle for homeowners in the Beach Cities will be if they want to refinance after owning a home for a short period of time.

The good news on real estate loans is that the rates are still pretty good. Most of our home buyers are looking at jumbo loans (over $417,000) because of the price of homes in Manhattan Beach, Redondo Beach, Hermosa Beach and El Segundo. Rates on jumbo loans will be higher then those on conforming loans. I suspect rates and points will be a moving target over the next few weeks until the market settles. This is definitely a time to do a locked in rate.

Next week will prove interesting as the FED will be meeting amid reports on productivity and reports about the consumer credit situation. Investors will be closely watching this meeting to see what they have to say in light of the current market woes.

The real test of the new guidelines will be for potential home buyers who have made poor credit choices or have not saved much for a down payment. They may have to postpone homeownership until they get their financial house in order. Frankly I think tightening the underwriting rules is a good move. It never made much sense to me to buy a home you couldn't really qualify for so you could watch it go into foreclosure a few years later. You don't have to be a rocket scientist to figure out that one.

Kurt Jackson offers some insight into what is happening behind the scene in The Story Behind the Story.. give it a read to find out more about how the lending world works.. Brian Brady , America's Most Opinioned Mortgage Broker, also offer a series of posts on what has been happening in the market in the last week.. Here is another good explanation on how the mortgage market works from Jeff Belonger.. Explanation of Mortgages: From the Beginning of Time.....

I will be adding more to the story as the market figures out how much money they want upfront to cover their risk level. Rates may stay level but points could go up considerably

CA Beach Cities: Home Loans...: It's Going to be a Bumpy Ride

I've spent a lot of time today talking with local lenders about the changing home mortgage market. It's going to get nasty out there before it gets better. Buyers who have traditional jobs with a regular paycheck and 20% down will breeze through.. everyone else may have trouble getting the loan they want to purchase a home. Underwriting rules are going back to the old days.. 10%-20% down and full document verification for most loans. If you want to do a loan using stated income you will need 20% down.

I've got clients in all price ranges. Fortunately most of them have good down payments but a few were hoping to use 5% and get an 80/15/5 loan. They still might be able to do it as they have no debt but it will be extremely hard. I noted a few brokers still pushing 100% financing but I think that's a thing of the past.

The fortunate buyers are the ones with 20% + down; especially in the $800,000-$1.5m - range in Hermosa, Redondo and El Segundo and in $1.5m -$2.5m price range in Manhattan Beach. These buyers are going to be gold as far as buying a home. Others who had been hoping to buy a beach home using an 80/10/10 with a stated income loan are going to have problems. They will have to use full documentation to get that loan and many, because of the type of jobs they have, will have a difficult time qualifying.

Buyers with less then 20% down who have to use fully documented income may not qualify for as large a loan as they would have with a stated income loan because of the ratios that will be used. In the old days the basic ratios were 28-34% of your gross income for a mortgage payment and 36%-38% of gross income to include all debt including a mortgage payment. Lots of people in the Beach Cities are in fields where they are not straight salaried employees but are either commission based or a mix of salary/commission and/ or a quarterly or yearly bonus. These people often make a lot of money but they will have a harder time obtaining financing with the tightening of lending rules. There will still be stated income loans but a buyer will need 20% down to use them.


The group that is going to have real difficulties are those who had some of the more exotic loans and had planned to refinance. Many of the options that have been open to homeowners are going to disappear. Refinancing is going to be tough as some lenders may require an 90% equity position and or occupancy of at least one year. I strongly urge anyone who needs to refinance this year to call a local lender now... there may still be a program you can get into but they won't be here long.


Don't kid yourself, the new financing rules are going to affect the potential buyer pool. The hardest hit will be those trying to purchase an entry level home. Not many first time buyers have a large downpayment. Most were counting on using loans that may no longer be available. So hang onto your hats folks because it just may be a bumpy ride..