Sunday, May 18, 2008

Real Estate in California

Real Estate in California has gone up to heights that could not be imagined. A house that was selling for $125,000 in 1990 is now selling for over $800,000. This trend cannot hold up for long. Prices have already come down.

The reason for the increase was two fold. One was people were coming into California at a higher pace. Secondly, lenders were giving much higher loans than they should have. It is the second that was the downfall People got in with interest only payments with adjustable loans. They barely made the criteria for qualifying. The moment the interest rates went up they could not afford the new payments. They were originally sold on the idea that interest rates will not go up for some time, and by that time their incomes would go up to be able to pay the mortgage.

There was a flaw in that thinking. The interest rates went up and a lot of people lost their jobs. Now the asset became a liability. People baled out and the banks got stuck with the houses. Most of these banks had bought these loans. Still, some of the blame is on their shoulders. They bought these loans knowing what they were. The person who lost out is the poor soul who bought the house right! Wrong, how can anyone buying those loans be without blame? They had to understand the consequences.

Now people are suffering and fingers are pointing in different directions, but whoever is to blame the public is left to clean up the mess.

Another place people made mistakes is in refinancing. Some refinanced several times. Now they are stuck with heavy loans on the property that is hard to get rid of. At the time it was very nice to buy the new cars and clothes etc. Now they are paying the price.

Let us hope that the hemorrhaging will stop soon. At least then people can get back to normal lives.


Binny Satin

Sold real Estate in Southern California since 1985, Now an author

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