South Bay Homes and Real Estate

South Bay real estate investors and homeowners bracing for the real estate bubble burst.

Though many had predicted the Real Estate market collapse, some were blindsided, as the same market
that offered many profitable opportunities several years ago started a downward spiral.

One of the first scenarios that must be analyzed to understand the crash is the fall of the subprime mortgage
market. Due to the weakness of the market, companies were facing foreclosure and debt that reached the billions. While the collapse of the subprime industry has garnered much publicity and news attention and affected the majority of property owners, many people are still unsure why the market reversed so quickly.

What happened?

Several years ago, subprime mortgages were excellent opportunities for many looking to purchase homes in Torrance and across the South Bay The subprime mortgage had the most appeal for consumers without
excellent credit histories looking to get involved in the scorching hot California real estate market. The general rules and guidelines were mostly more relaxed than standard mortgages. As a result, even buyers with awful credit were able to secure a loan. In return for taking a chance on a consumer without great
credit, the lender charged a greater amount of interest. The underlying belief was that even if the buyer defaulted on the loan, the South Bay property could be foreclosed and sold at a profit.

The funding for these loans came from different locations. Low rates of interest made many lenders take loans, And then lend their own personal money to buyers. Other situations saw the money come from a more complex scenario. Governments, especially in the United States, are known to take loans from the central bank.

During the boom of subprime mortgages, the real estate market, especially that in South Bay was at its
highest peak in a long time. In addition, too many people investing in homes were saddling themselves with massive debts. Experts analyzing the market predicted growth that now appears to have been extremely unlikely.

During the final two years of the real estate peak in 2005 and 2006, lenders would hand money to essentially
anyone, overlooking credit history or the ability to pay back the loan. The loans given out were a huge opportunity for profit for the lenders. The problem with the strategy was that interest rates did not remain at their historically low numbers. History shows that rising interest rates have always had an adverse effect on the housing market. If interest rates are tiny, the demand for property is high. When the rates rise, it has a negative correlation on demand and eventually price. Leading up to the middle of 2006, construction companies could not keep up with the demand for new homes. However, around the middle of the year, demand was reduced. This time period also marked the beginning of a much higher percentage of defaulted loans.

In a short time, lenders had a much tougher time securing funds for buyers. Those wishing to purchase homes found it much tougher to secure the necessary capital, as money was much tighter. As a result of the vastly reduced potential rewards, lenders were no longer willing to take on such great risks associated with loose mortgage guidelines and buyers with poor credit. Consumers without a fixed rate mortgage began having greater difficulty coming up with the needed funds for their payment. Finally, homeowners could not make payments on loans that they really could not afford to begin with. Foreclosure number skyrocketed, and lenders could not sell the foreclosed properties for profit in the tumbling market. The cycle grew worse and worse, as potential buyers could not receive loans as a result of lenders having all their assets tied up in properties that consumers could not afford.

The entire South Bay home prices have been depressed but not nearly to the level of some other areas, such as the Inland Empire. Torrance home prices are generally remaining flat or slightly down from last year. Reasons for this levelling off include our proximity to Los Angeles and the power house of jobs provided by the entertainment industry. Aerospace and high-tech sectors also continue to grow and bring home buyers to the area.

Additional Reading:

Carson real estate investor’s delight: Foreclosure
Oprah to Halle Barry: The inside scoop on how and where they
live
The Top Real Estate agent in Rancho Palos Verdes and the South
Bay
First Time Homebuyers Tax Credit: Torrance, Palos Verdes and Beach
Cities