By Last month, home sales in California were up almost 17% over November, and more than 10% over December 2008. This would indicate that progress is being made. Indeed, lots of people are predicting (as many do at the beginning of each year) that there will be a marked turnaround in market value and that things will do nothing but get rosier.
But there’s a problem that not a lot of people are talking about.
Raise your hand if you’ve heard of Strategic Mortgage Default.
No? Let’s talk about it.
Strategic Mortgage Default occurs when a homeowner, finding his home worth less than he owes on his mortgage, intentionally allows it to go into foreclosure. Let me repeat that: intentionally. Right or wrong, lots of people have done it. And many, many more are considering it. The thinking, typically, is that throwing good money after bad will just lead to … nothing. Many people believe that their homes will never again be worth what they paid for them. As such, they think, “Huh. No more property taxes, maintenance, insurance? That sounds good.”
In 2010, based on when many parts of California saw their real estate markets “top out”, many homeowners will have adjustments in their mortgages kick in. One saving grace here might be that interest rates are quite low, so payments mightn’t change all that much. But these adjustments, coupled with new taxes just passed in the state and the realization that their homes aren’t worth close to what they paid might be enough to have many people throwing in the proverbial towel.
While all of this might sound bleak, it would be naive to issue feel-good platitudes and not face the reality of the situation head-on. Strategic Mortgage Default will do its part to radically raise the number of bank-owned for sale in California. And there are lots already.
If you’re planning on selling your house this year, these homes — part of what we call “shadow inventory” — could play a big role in where you can, realistically, set your price. If you’re planning on buying, you’ll want to know how to position yourself to get the best price possible on your purchase.
Strategic Mortgage Default is going to be something you’ll hear more and more about in 2010. Like “short sale”, “REO”, and “foreclosure”, it’ll become part of the daily vernacular.
Pretending that the world is draped in sunshine and rainbows won’t solve anything. It might make people feel better for a while, but it won’t solve anything. Facing reality is the only thing that gets the job done. Your Intero Real Estate professional is ready to deal with reality. Let us know how we can help.
