What the Bad Credit Mortgage Mess Means For You

Whether you’re a seller, owner or buyer, by this point you’ve got to be feeling rattled. The bad news about the housing market is never ending.

• Foreclosures have more than doubled over the past year.
• Sales of existing homes are off 11 percent from this time last year.
• At that rate, it will take at least nine months to work off the inventory of unsold homes.
• And median home prices in July dropped for the 12th month in a row.

Worse yet, all that happened before problems in bad credit mortgage lending expanded throughout the market and beyond, creating what’s popularly being referred to as a credit crunch.

While it’s too soon to see the impact reflected in the numbers, the future is clear, at least in the short term: As lenders tighten standards, fewer people will qualify for mortgages.

Fewer qualified buyers can only mean that prices will slump further. Worst of all, economists don’t see much chance for turnaround until mid-2008 or into 2009.

The good news (if there is any) is that all real estate is local, and some markets are doing just fine. More than half of the major housing markets in the country have yet to see prices drop, in fact.

Even if yours is in the grim half, there are steps to take to minimize the damage if you’re planning to sell your house anytime soon.

Homeowners who plan to stay put for a while may not have anything to worry about. And if you’re a buyer, this could be the opportunity of a lifetime.

Even before the credit crunch, softening home prices turned into outright price drops in many areas, particularly markets red hot a couple of years ago.

In Las Vegas, for instance, prices have dropped 3.6 percent over the past year. In Sacramento they’ve fallen 6.3 percent.

And the damage is in double digits in parts of Florida, like Sarasota (down 11.3 percent) and Palm Bay (off 15 percent), putting those markets on par with some of the worst real estate busts in recent history.

With home mortgages now harder to obtain, resulting in even fewer buyers to sop up the homes flooding the market, forecasters expect the weakness in sales to continue.

Prices of luxury homes, mostly immune until now, may be hit hard. Rates on jumbo mortgage loans ($417,000 or more) have spiked to 7.46 percent, and some lenders are charging more than 8 percent.

At those home loan rates, fewer buyers can afford a high-end home, and those who can have to jump through more hoops to get approved for a loan. But the sellers who face the biggest hurdles are those in a rush to seal a deal.

Continue reading this CNN / Money Magazine article on bad credit mortgages and what the rising national problem means for you personally…