I am surprised that no one talks about it, but: where did all the bridge loans go?
It used to be that when you wanted to move up, or move down, you could buy a property first, and then sell your current home. You insured in the process that you would not be out of a place to live and you would only move once.
Banks used to lend you money, based on your qualifications of course, but also based on the fact that the old house would be sold immediately. They required to see that the house was listed with a Realtor, and if the market was not awful, it made a lot of sense: the house would eventually sell, and the old loan would be paid back. The banks did not take any risk doing so (the profile of customers doing this is not particularly risky when you think about it).
The fact that the market went seriously South is certainly a good enough reason to stop doing bridge loans. But, haven't the banks heard yet that in the certain areas, it is a strong sellers' market? You would think that they would have acknowledged that by now, in particular in the Bay Area. And the Bay Area is by no means the only area with a sellers' market.
Among the many factors that would help the recovery of the real estate market nationwide, and the economy as a whole, this is a major one. My experience is that a good 10 to 20% additional properties would be on the market if banks made bridge loans. Right now the way things are goes like this: sellers have to sell their house first, then buy the replacement home with the proceeds of the sale. But since they are not sure at all that they will be able to buy because of the excessively competitive environment, they do not risk the move.
A bridge loan is the solution. By freeing a lot of housing inventory, it would enable more people to buy homes (one just has to look at open houses in the Bay Area since the beginning of 2012 to see the demand), more loans would be made, and the market would go up - in a more orderly fashion than now. The banks would certainly win: they are in the business of making loans, good loans. And in these situations, there are two loans to be made, instead of just one.
So, what are they waiting for?
Does your personal experience fit in this scenario? Let me know...
Thanks for reading,
Silicon Valley real estate
Local market: Smart graphs