Analyst says Sacramento may be past subprime loan crisis

The Sacramento BeeMarch 4, 2009 

A significant new indicator hints that as Sacramento was among the nation's first housing markets to stumble and fall, it may now be among the first to point the way out.

Tuesday, a leading state economist said the subprime loan crisis that triggered the housing and economic downturn – while destroying dreams of homeownership in thousands of Sacramento-area households – has largely run its course in the region.

"In Sacramento County we're through 80 percent of the subprime resets," said Leslie Appleton-Young, chief economist of the California Association of Realtors.

That's the highest percentage for a housing market in California, which has been particularly devastated by subprime borrowing and the foreclosures it spawned. Analysts say it's too soon to talk about a housing recovery based on the subprime reset statistic, but "it means that day of stabilization is closer," said Andrew LePage, analyst for housing market tracker MDA DataQuick. His firm, too, believes California will have weathered the worst of its massive subprime losses by the end of this year.

California is through 67 percent of its subprime resets, the CAR report indicated.

Subprime loans became a dominant mortgage product at the height of the housing boom to make expensive homes affordable to people with troubled credit histories. The loans were sold with low initial "teaser" rates that reset after two or three years to higher, often unaffordable monthly payments. Thousands of households, assured that they could refinance in two years, instead defaulted when falling values blocked that option.

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