New times are ahead for those in the Bakersfield real estate market or for those who want to break into real estate for the first time. Many people who opted for creative mortgages during last years housing mania may want to reconsider what is at stake if rates go up or home values go down. The housing boom has forced many people to use any financial leverage that they could to buy a home such as risky ARM’s with low initial-cost benefits, interest-only payments, option-payment, and piggy-back loan terms.
Any number of factors could contribute to a high rise in the number of people seeking mortgage counseling in the next couple of years. If interest rates rise and/or home price appreciation slows you will see many home owners stepping into the murky waters of mortgage delinquency.
Creative loans are very risky as they make it cheaper in the beginning for home buyers to afford a home but are much more risky over the long term. Fixed rate mortgages are the best way to invest in a home over the long term. Many people will soon be victim of a payment shocker when they see how much their mortgage payments have gone up. The result of this can be good or bad, depending on how you look at it.
If the situation starts looking bad for you, the best thing to do is to refinance your creative loan and get a fixed rate loan. Regardless of if you can afford the fixed loan, this still should be your first step. The ARM will just keep going up and soon the payment will be more than a fixed loan would. After you refinance you may want to see a financial advisor to plan how you will deal with the burdon of a high mortgage payment.
For others who may want to break into the real estate market in Bakersfield this may be the time to buy as homes will be sold off at cheaper prices by people who cannot afford the payment anymore. I expect there to be a plethora of reasonably priced real estate available in Bakersfield during the next couple of years. As well as the vast amount of homes that will appear on the market, mortgage rates are still reasonable and should make buying a home delightful for a change.
Mortgage rates continued to fall for the sixth straight week which is off-setting the earlier gains the rates have recently taken. This has provided some immediate relief but the rates are still fairly high. In contrast to this good news, housing sales continue to slack off and inventories of homes are rising. Builders are getting hit real hard as they are not used to this kind of stagnation. Lenders are also feeling the pain as their business continues to hurt from a lack of home sales in the Bakersfield area. The entire home investment market is feeling the effects of this sluggish market.
People may also be put off by the relative inactivity of home values. As home values ballooned to astronomical numbers in Del Kern last year, they have yet to come back to Earth even in this buyers market. Homeowners are extremely reluctant to drop the asking price on their home and realtors echo their client’s reluctance since they get paid a percentage of the asking price. Concessions are being made by sellers but such under-the-table discounts are not recorded in realty publications. This puts off many buyers because they are not going to settle for a inflated home price when there are so many on the market. The sellers are distorting reality with their concessions. Nobody is willing to accept the fact that home prices, at times, drop.
The bubble is poised for a bust. This is not a good thing to hear but it is slowly becoming reality. Many who bought run-down homes for ridiculous prices last year have already spend their inflated equity and now can’t sell or refinance. If the bubble does burst it could bring a recession with it that would effect many more than those in the real estate business.